25th January 2019 Market Update
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🇬🇧 GBP – Sterling was the victim of some profit taking yesterday having surged to an 11 week high on Wednesday night as it drifted lower by 0.2 per cent, ahead of next week’s vote on Theresa May’s ‘Plan B’ Brexit deal. This is after the overall consensus within the market that the UK may yet be able to avoid a hard Brexit which in turn helped Sterling to strengthen by 2.3 per cent. That being said, while the likelihood of a ‘No Deal’ is pricing itself out of the rate, there still remains no signs of how Theresa May will break the parliamentary deadlock. This is due mostly to the fact that May’s ‘Plan B’ is very similar to ‘Plan A’ as she chose to spend this week focusing her efforts on reducing concerns around the Irish backstop. Unfortunately for May, her fellow MP’s have decided instead to focus on a series of amendments to the Brexit deal and none more so than Yvette Cooper’s who has put forward a clause that the government be given until 26th February to get a deal approved or else Parliament will be given an immediate vote on whether to apply for an Article 50 extension; at the moment this is looking to be until the end of 2019. The amendment has garnered support from some of the key Labour Party members and as such is likely to succeed on Tuesday. As a result, Sterling has strengthened this week as the amendment provides a clear pathway for lawmakers to avert a chaotic EU exit on March 29th. That being said, any extension would require the EU to unanimously agree to it, which is by no means a given as they have made clear that a legitimate reason would be required.
🇺🇸 USD – The US Dollar index, a measure of the greenback against a basket of other currencies was down 0.2 per cent this morning as traders continue to manage their books around the ongoing trade dispute between the US and China. Linked to this, the latest update involves US Secretary of Commerce Wilbur Ross who, whilst accepting that there was a ‘fair chance’ of a trade deal, he remained concerned that the two nations were still far apart as the details ‘remained very complicated and there were a number of issues.’ Contrary to that, Lawrence Kudlow, the White House Economic Advisor was keen to mention that the President was optimistic about trade talks and that he expected the January jobs report to be up by a significant amount. This contradicting news is keeping the Dollar relatively steady, but as ever – one headline or quote, either way, has the potential to move the rate as investors have become increasingly tetchy on the issues of global growth. Separately, in terms of the government shutdown, any hopes of a resolution yesterday failed somewhat convincingly as the Senate were unable to pass either a Democratic or a Republican bill to fund the government as the shutdown enters the 35th day. Looking ahead today, the US data calendar remains largely void of any significant releases.
🇪🇺 EUR – Yesterday the key for the Euro was very much centred around the dovish ECB meeting which was supportive of the view that the Eurozone was providing very little reason for any Euro upside. This was most notable in the comments of ECB President Mario Draghi, who did not go so far as to say that the ECB would be committing to another round of stimulus, at least not yet anyway. Either way, the probability of a rate hike in the ECB deposit rate in 2019 is steadily falling given the weaker than expected growth and unimpressive inflation numbers, meaning that the Euro has little reason to be positive. Despite this, we are seeing some optimism this morning from Benoit Coeure, a contender to become the ECB’s next president, who urged patience as he believes that it is still too early to judge whether interest rates will be raised in 2019. Of course, yesterday’s meeting happened after yesterday’s PMI figures for the Eurozone area which came out disappointing to say the least, as manufacturing in Germany and services in France both came in below 50, indicating a contraction in both sectors. Looking ahead today the German IFO survey will provide us with further evidence of German business sentiment on an otherwise quiet day for the Euro.
GBP: Sterling has climbed 1.8 percent this week, hitting an 11-week high against the Dollar on the hopes of avoiding a No Deal Brexit.
USD: Contradicting reports on the progress of the trade talks between the US and China are keeping the Dollar’s fortunes on the downside.
EUR: Dovish ECB holds off on any indication of stimulus, as it revises its growth and inflation forecasts lower.
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