3rd January 2020 Market Update
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🇬🇧 GBP – It was a strong start to the trading day yesterday, however a strong dollar soon took the wind out of GBP sails as US traders started their trading day and GBP/USD dropped from 1.32 to 1.31.
With most investors confident that Boris Johnson’s bill will breeze through parliament by Thursday, focus has shifted to EU-UK trade negotiation talks, with the president of the EU commission coming to number 10 today for an initial meeting with Boris Johnson. The outcome of the initial contact between the leaders could determine how Sterling trades this week, with any apparent progress coming out of the meeting likely to prove positive for Sterling, while early disagreement could well lead to some weakness, so today could be quite a significant in setting the tone for future movement.
Johnson is determined that the next phase of Brexit talks will be significantly smoother than the first, which were filled with by infighting and hostility on both sides. Jeremy Corbyn has said he will try to add clauses in the withdrawal bill to prevent a no deal but these are likely to be voted down. Expectations of a no deal seemed to evaporate last month when Johnson won his landslide majority , however it has been brought back to the table when he renewed his promise to leave by the end of the year.
🇪🇺 EUR – Preliminary inflation figures came out exactly as expected yesterday, which left markets muted. The Euro fell off against a stronger USD after US/Iran tensions appear to have not escalated. Against sterling however, the rate movement has been extremely volatile, as investors struggle to predict how trade negotiations will progress over the next 12 months. Michel Barnier has already stated that he believes the talk need more than 12 months, which hints that the UK could still crash out at the end of December without a deal.
This is a quiet week in the economic calendar for Europe, so the Euro will remain reactive to world news and ongoing Brexit news.
🇺🇸 USD – The U.S. dollar has recovered some ground amid market relief that the situation in the Middle East has not deteriorated further. Participants were closely watching for signs of Iranian retaliation after Iranian Major-General Qassem Soleimani was killed in a U.S. drone strike on his convoy at Baghdad airport. Although Iran launched missiles at US troops in Iraq last night, they have said that this is the end of their retaliation, giving some relief in the markets.
Data-wise, it is also quiet for the states, with nothing significant released until Fridays non-farm figures. All eyes will be watching how the Iranian situation unfolds, and be positioning accordingly.
GBP: Number 10 welcomes the president of the EU commission, while parliament reconvenes
EUR: The single currency could strengthen amid expectations that the EU doesn’t want to facilitate a competitor
USD: Trump tweets “All is well, so far so good” in regards to Iran missile strike
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