UK policy makers hint rate cut, reversing sterling gains

13th January 2020 Market Update

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?? GBP - The pound was fairly range bound last week as markets began the digest tensions between the US and Iran, as well as ongoing Brexit advancements. All GBP gains from last week have been reversed this morning, leaving the pound at its weakest levels in December. Comments from Bank of England policy maker Gertjan Vlieghe indicated that she would vote for a rate cut but it is dependant on how the economy performs since the election. This shows another member of the committee voting for a cut of 25bps and shows a negative outlook for the UK economy.
Movement this week for the pound if likely to depend on any outcoming statements from number 10 regarding trade negotiation with the EU. These discussions will need to progress far more quickly and seamlessly than initial withdrawal negotiations if we are to leave with a deal at the end of the year.
A raft of data out from the UK today could set the tone for the week, as any weak data could lead to early rate cuts. Industrial and manufacturing production are expected to drop off this morning the and GDP figure is set to stay the same. Sterling sellers will hope for better than expected data to prevent more sterling weakness.

?? EUR - It has been quiet in the data calendar for the Eurozone for the past few days, leaving the Euro more reactive to world news.
It looks like it could be another quieter week for the bloc, as the eyes of the world have bigger focus on the US-China trade deal, as well as other world political issues.
Wednesday sees the first more important data releases, with industrial production figures, these are expected to improve for the Eurozone but still remain negative.

?? USD -  De-escalation between the US and Iran appears to have been agreed, Trumps statements throughout the week manipulated Gold, Oil and the
USD. This morning it appears that a “phase 1” trade deal between the US and China will be agreed, should everything go smoothly we could see further USD strength, which has already broken he 1.30 support level. Adding to USD strength is news that the conflict in the middle east are fading, giving investors more confident in the buck.
First key data this week is inflation figures which come out tomorrow and expected to stay flat at 0.2%.

Summary:

GBP: The pound breaks below 1.30 against the USD
EUR: No big news in Europe leaves the single currency reactive
USD: The dollar is king in recent trading, as geopolitical issues subside

 

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