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Data Driven Euro & Dollar

31st January 2019 Market Update

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🇬🇧 GBP – GBP/USD continues to trade a one cent range in the aftermath of Tuesday’s events as the various parties involved remain locked in a Mexican standoff of sorts as we wait to see who will blink first in negotiations if anyone. On the one side of Theresa May, we have the EU’s chief negotiator Michel Barnier who has deemed the Irish backstop ‘part and parcel’ of the UK’s withdrawal deal and something that will not be renegotiated. On the other side of Theresa May, we also have Jeremy Corbyn who has demanded that a No Deal was an unacceptable Brexit outcome and that it be removed from the table come March 29th. Indeed, suspicions are that May most likely agrees with this idea, but is keen to use it as a bargaining chip in her interactions with the EU. Up next, whatever May comes back with from Brussels, even if she returns empty handed, we expect a set of fresh amendments being put forward for debate by MP’s ahead of the next vote on the 13th/14th of February. Until then, Sterling is likely to remain well supported, as investors establish whether the mandate given to May on Tuesday will allow her to earn some additional concessions in negotiations with the EU this week.

🇺🇸 USD – While it was expected that the Federal Reserve would not increase interest rates – the real value in terms of those looking to invest in the Dollar came as part of the Fed’s statement in which its forward guidance dropped the need for ‘further gradual increases.’ Instead, it indicated that it would adopt a data-dependent approach. In terms of justification, they cited the global economy and financial developments in equities as justification to switch to their more ‘patient’ approach. As a result, the likelihood of further interest rate increases is markedly reduced which in turn caused the Dollar to fall to a three-week low against other major currencies last night. Another issue worth considering, now that the government shutdown has temporarily been halted, is the ongoing spate between the US and China, whose representatives met yesterday for the first day of high-level talks. With only one month left before the short term truce comes to an end, there remain concerns amongst a number of American businesses on whether the two can come to an agreement in time. Saying that interested parties remain optimistic, helped by the comments of U.S Treasury Secretary Steven Mnuchin who expressed optimism that ‘significant progress’ can be achieved as part of this week’s meeting.

🇪🇺 EUR – The main focus today for the Euro was the Eurozone GDP figures which came out in line at 0.2 per cent QoQ and 1.2 per cent YoY, which is a far cry from the ECB’s target. As a result, this morning’s data helped to confirm what many had already thought in terms of the reduced likelihood of any future tightening from Europe’s central bank. In turn, we have seen EUR/USD come off its highs this morning, helped by news that Italy is officially in a recession and German Retail Sales were also unimpressive. This is after we had seen EUR/USD rise 0.2 per cent towards three-week highs last night as a result of the Dollar weakness and the better than expected data out of France over the past few days. However, this positivity didn’t translate across Europe as ongoing concerns of the weakening growth in the Eurozone remain difficult to shake, meaning that instead of interest rates going up, rumours are now rife for a new round of ECB stimulus.

 

Summary:
GBP: GBP/USD remains rangebound in the aftermath of Tuesday’s Commons vote as the focus now turns to May’s discussions with Brussels;
USD: The Fed keeps interest rates on hold, but more importantly remove the need for ‘further gradual increases’ as part of forward guidance;
EUR: This week’s big-ticket Euro GDP data comes out in line, as concerns for slowing growth solidify amidst poor German Retail Sales and a technical recession in Italy.

 

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Ali Malik

Ali Malik

Ali is responsible for providing clients with relevant foreign exchange advice, daily reporting and pricing to ensure they are updated of all market moves. His experience includes working for Goldman Sachs, UBS and Lloyds Development Capital.

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