Carney’s comments hurt the Pound

10th January 2020 Market Update

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?? GBP - Sterling reacted to Mark Carney’s comments yesterday morning that a “relatively prompt response” could be expected from the Bank of England if the current economic weakness continues. Carney also hinted that the Bank could inject stimulus by delaying an interest rate increase until inflation is well above target rather than return to the policy of quantitative easing. This rather downbeat assessment of options for the Bank of England resulted in a drop of 0.6% for the Pound versus the US Dollar to reach the lowest level of 2020 so far. The 3rd reading of the Withdrawal Agreement bill passed comfortably yesterday evening ahead of a tougher route through the Lords next week.

Today is lacking in economic data for the UK and is unlikely to feature volatility caused by Brexit. Sterling has been under pressure since the beginning of the year although a Reuters poll released this morning suggested that the Pound could gain around 2 cents against the US Dollar by the end of the month.

?? EUR - Europe’s unemployment rate remained resolutely flat at 7.5% where it has been for the last 6 months. As a result and with little else to excite markets, the Euro was fairly quiet amongst its major peers yesterday. ECB member Philip Lane’s speech was largely technical and therefore was not of interest to the FX markets.

It’s likely to be another subdued day for the Euro without any key events for markets to focus on. In the weeks ahead, the response of the EU as trade negotiations begin will be crucial for where the Euro pairings will sit at the end of the quarter.

?? USD -  US Dollar movements were dictated by markets appetite for risk yesterday. As the threat of conflict between the US and Iran eased, markets returned to favouring a risk-taking approach which was aided by hopes of positive trade talk developments between the US and China. The US Dollar joined other safe havens such as Gold and the Japanese Yen in retreating against major peers, although the Greenback did gain marginally versus the Euro and is still on course to post its best week in two months.

Labour figures will be watched by markets today on the release of Average Hourly Earnings and Non Farm Payrolls for December at 13:30. A sharp drop is expected from the previous reading following strong figures in November but typically the US Dollar will respond to the deviation between the published result and the expected level. A big rally for the US Dollar could occur if the November figure is matched but analysts are also braced for a sharp move to the downside if the figures disappoint.

Summary:

GBP: Sterling drops as Carney signals interest rates will be lower for longer
EUR: Quiet end to the week for the single currency
USD: Labour figures could help Dollar achieve best week for two months

 

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