Sterling boosted following cabinet reshuffle

14th February 2020 Market Update

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?? GBP - As seen yesterday, the pound broke the key resistance level, following a 6 month consecutive gain against the euro as Rishi Sunak looks to fill Javid’s shoes. Sterling's gain comes amidst ongoing chronic weakness in the Euro, as well as political developments in the UK where Prime Minister Boris Johnson replaced the head of the Treasury, leading foreign exchange markets to believe that a sizeable fiscal stimulus is coming. Traders now will be looking at more public spending, growth within the UK economy and the possibility of the BOE re-analysing their view on possible interest rate cuts.

To cover the week, sterling has been quiet data-wise as GDP (MoM) figures resulting in 0.1% higher and manufacturing coming in at 0.3% from the previous -1.6. Overall, good figures from the UK this week. Today there is no Red Flag data due from the UK.

?? EUR - The euro suffered a big loss yesterday as safe-haven flows continue to weaken riskier assets. As the coronavirus published a sharp rise in the number of new cases the euro hit four and half year lows against the Swiss franc and also the Yen gained against the currency. Over the next few months, I would expect more euro weakness as expected disappointing data, coupled with Brexit talks and safe haven movements.

Today the EEA release German Preliminary GDP (QoQ), it is expected to remain at 0.1%, yet any lower deviation should cause lower euro movement.

?? USD - Yesterday inflation came in at 0.1% with Core inflation staying put at 0.2%. Today we have prelim UoM consumer sentiment and retail sales out at 1:30. Retail sales are expected to drop to 0.3 from its previous 0.7%. Any movements would be largely dollar related with continued safe-haven flows and economic data releases.

Summary:

GBP: Pound posts highest level versus Euro since the election result
EUR: Currency continues to weaken on risk-averse sentiment
USD: Dollar boosted on safe-haven demand

 

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