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Happy Holidays from FairFX!

21st December 2018 Market Update

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Today will be our last Market Update for 2018.
As a result, we at FairFX would like to take this opportunity to wish all of you a Happy Holiday and a brilliant New Year!

🇬🇧 GBP – The Pound gained 0.3 per cent this morning as it looks to post its first weekly gain after six weeks of back-to-back losses. Overall, Sterling has gained 0.8 per cent this week against the Dollar although the majority of this move should be put down to Dollar weakness as opposed to any significant headlines pushing sterling higher. This is evidenced by the dovish tone set by the Bank of England yesterday as they kept interest rates on hold and warned about the risks of a no-deal Brexit in their final MPC meeting of the year. Moving on, many will be glad to know that today will be our final Brexit update for 2018. As part of this, PM Theresa May’s senior team are reviewing different alternatives on what to do if the current deal is rejected. At present, the options being discussed include the postponement of the UK’s divorce from the EU, the calling of a second referendum as well as announcing national elections. However, we may have to wait on any concrete decision as Parliament have begun their recess for Christmas; MP’s will return on January 7th with the next Brexit debate scheduled for January 9th. Over this time, we expect the Pound will likely remain sensitive to Brexit-related headlines, with added volatility in rates being caused by thinly traded markets. Data wise, this morning saw UK GDP come out exactly in line at 0.6 per cent QoQ and 1.5% YoY; this has had little impact on Sterling as it continues to stay within its range.

🇺🇸 USD – In contrast to Sterling, the Dollar is headed for its worst week in 10 months due to the ongoing sell-off in equities and rising concerns over global economic growth. Firstly, the most recent catalyst for the falling stock market is the concerns in the US of a partial government shutdown, as well as the resignation of Defence Secretary Jim Mattis yesterday over differences with President Trump on policy. Furthermore, the bulk of the US losses this week were as a result of Fed Reserve Chairman Jerome Powell indicating that there was ‘significant uncertainty’ about future rate hikes, blaming weakening financial markets and a moderating growth outlook. As well as this, we must appreciate that given the time of the year – we are also seeing the liquidation of a significant number of long Dollar positions as traders appear to be profit-taking after a strong year for the Dollar. Looking ahead today, we will see the release of US GDP data and following this week’s events there is some added weight to today’s reading as many investors believe that the Fed is more likely to pause rate hikes in 2019 if we see a revision lower of US Q3 GDP today, which would no doubt see the Dollar’s bad week get even worse.

🇪🇺 EUR – The single currency is currently down 0.1% this morning, having previously approached a 6-week high earlier on today, as it looks to end this week on a high. This is after current account data for October provided some rare support for the single currency yesterday, which added to the Euro-positive sentiment as Italy and Europe finally agreed on a suitable Budget for 2019. In terms of numbers, October’s surplus was €23bn, up from €18bn in September, which saw the annual surplus come in at €345bn to the end of October. While this figure is down from last year’s surplus of €350bn, the Eurozone continues to maintain a surplus equal to 3 per cent of its overall GDP. In addition, as mentioned by Mario Draghi, pay gains, rising exports and receding problems in the auto industry offer some hope that the New Year may yet bring an end to all the doom and gloom. Linked to this, the Eurozone should be helped by the recent fall in oil prices; given that Europe is a net energy importer, companies and consumers should be helped by a reduction in cost, given the market more money to spend elsewhere.

 

Summary:
GBP: Sterling looks to buck the trend after six weeks of consecutive losses; Parliament begin their Xmas recess, while UK GDP comes out in line with expectations.
USD: Dollar suffers worst week in 10 months as impact of the Fed Meeting, as well as the threat of a government shutdown, keeps the greenback on the backfoot.
EUR: European economy showing some signs of optimism after a tough 2018.

 

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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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