16th December 2019 Market Update
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🇬🇧 GBP – Many of the British public, including investors, breathed a huge sigh of relief on Friday, as Boris Johnson’s staggering win in the election saw the pound soar 2.5% higher against most of its major counterparts. Sterling reached a 19-month high versus the dollar and its strongest levels against the euro since shortly after the 2016 Brexit referendum.
Mid-day trading on Friday however, did see a slight pull back for the pound, as markets began to digest the news and sell off profits.
Attention will now inevitably turn to the details of a trade deal with the EU, as Boris begins another 12 month negotiation with the bloc. The mantra of “no delays, no excuses” is a possible cause of Johnson’s success during the election, but he is bound to meet stronger opposition in the EU, with the likes of Michel Barnier saying publicly that he believes 12 months is not long enough to come to an agreement. This indicates that there could be further speed bumps and delays down the road, which will likely prevent sterling pushing any higher.
This week, the main focus will be on be on Thursday’s interest rate decision, where a hold on 0.75% is expected. A successor to Mark Carney could also be announced, as well as expected rate movements in 2020. This could give an extra push to the pound if markets take the forward guidance as positive.
🇪🇺 EUR – Elections in the UK also spelled good news for the Euro, as Britain’s departure on the 31st January became almost guaranteed. Against the USD, the Euro broke 1.12, having previously struggled to spend any time trading over 1.11. “The results of the elections in Great Britain are positive because they eliminate uncertainty in the short term,” said ECB’s De Guindos at a financial event in the Spanish capital. “We know perfectly well that on the 31st January the United Kingdom will leave the union – this is good in terms of uncertainty, but also hails a new period, one which will not be easy.” He did caveat by saying that negotiations moving forward will not be easy, but the result is bullish for both counterparts in the short term
🇺🇸 USD – The US Dollar was the overall loser last week, in the backdrop of a bullish week the other side of the pond.
Retail sales were better than expected on Friday but still lower than previous, which did little to help the struggling buck.
Last week Washington and Beijing cooled their trade war last week, reducing some U.S. tariffs in exchange for what U.S. officials said would be a big jump in Chinese purchases of American farm products and other goods.
The last minute agreement helped the dollar lift against other safe haven currencies against the yen and swiss franc, but some economists fear that the trade war is not fully over. Attention in the states will likely turn to economic data to give a lift, as the USD will remain vulnerable to stronger UK and EUR currencies.
GBP: Huge Tory majority gives much needed clarity for financial sector and support for pound
EUR: Stability from UK elections gives boost to Euro also
USD: Dollar dips against a sterling week for counterparts
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