10th January 2019 Market Update
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🇬🇧 GBP – As expected, Brexit headlines meant Sterling had a volatile day yesterday. As part of this, GBP/USD was up 0.6% on the day overall, moving over $1.28 briefly before falling off. The main cause for this was the fact that the UK government received their second parliamentary defeat in three days, which now means that they will have to return to Parliament with a new Brexit alternative within three days if Theresa May’s Brexit Deal is rejected this coming Tuesday. Indeed, with only a short amount of time left before the scheduled triggering of Article 50 on March 29th, the government are expected to be defeated on Tuesday, while the overall outcome of Brexit remains uncertain. Linked to this and as part of the increased uncertainty, the BoE and Mark Carney indicated yesterday that the MPC expected that any future interest rate increases would likely to be at a gradual pace and to a limited extent. This is another reason we saw Sterling fall off yesterday. However, were we to see a successful Brexit, JP Morgan has forecast that Sterling would rise at least 4 per cent, while a Reuters poll saw it gaining as much as 8 per cent. As an indication of the lack of certainty around the Pound’s future, the 12-month forecast from the poll saw rates ranging from $1.22 to $1.59.
🇺🇸 USD – The Dollar had another off day yesterday due to a combination of factors which meant that it suffered its largest fall in three weeks. Firstly, comments from the Federal Reserve’s Bank of Atlanta’s Raphael Bostic indicated that the next interest rate move for the US could be either a cut or an increase as the Fed remained open to both, depending on the state of the economy. In addition, Bostic indicated that the rate was ‘near neutral’ which reduced expectations for any significant interest rate moves as we move into 2019. These comments were echoed in the Federal Reserve minutes released later on in the day, which emphasised the need for patience as well as the desire of some Fed members to keep rates on hold. Separately, optimism around the US-China trade talks has been helping to bolster risk sentiment, as China’s Commerce Ministry said that talks had been extensive and detailed as both sides were keen to remain in close contact. As a result of these combined factors, the Dollar was down against all of its G10 peers yesterday.
🇪🇺 EUR – Linked to the Dollar weakness, EUR/USD rose as much as 1% yesterday reaching its highest level since October. This move was helped by news that the Eurozone’s unemployment fell from 8 per cent to 7.9 per cent, which is a new decade low. This is despite continued hiring uncertainty as questions remain how much longer employment growth can maintain a solid pace. Given that 2018 was a fairly uninspiring year in terms of economic growth, there remains every chance that employment needs may be revised downwards as we move into 2019. Linked to this, French consumer confidence data out yesterday indicated further weakness after weeks of disruption caused primarily by the ‘yellow vests’ protests in France. As a result, PMI indicators were confirmed to have contracted at 48.7, while the main consumer confidence index reached its lowest levels since October 2014 at 86.7. All of this anxiety amongst French consumers means that overall sentiment is worse than at any point in 2008 and 2009. This is indicative of the overall concerns that exist throughout the main economies within the Eurozone as discussions of a recession are also rife in Germany.
GBP: Theresa May’s government suffers its second parliamentary defeat in three days, while ongoing Brexit issues mean the BoE remain uncertain of 2019 rate path;
USD: Dollar suffers its worst day in three weeks on the back of Federal Reserve minutes and dovish comments from Fed members;
EUR: EUR/USD hits highest level since October despite a continued raft of disappointing Eurozone data.
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