GBP - British Pound
It’s been a shaky start to the week for Sterling yet again, as investors become increasingly worried by PM Johnson’s hard stance on Brexit. The concept of a disorderly exit from the European Union without a transition deal has left GBP/USD trading at just over 1.2350 this morning, a new low since March 2017.
Johnson and his cabinet seem to be working on the assumption that the EU will not renegotiate its Brexit deal and therefore are working on a number of ‘No Deal’ Brexit precautions. Expect extreme Sterling strength on an announcement that trade talks are being considered by either Johnson or on the EU side. Investors now prepare for the BoE Inflation Report on Thursday. This will provide a valuable insight into the bank’s stance on inflation and economic growth and their projection for the next two years. A dovish stance may sway Johnson to reconsider his position on the EU and its’ trade value to the UK.
There is a more cautious mood surrounding the US Dollar as investors brace for the resumption of US-China trade talks. Two US representatives are waiting in Shanghai to continue talks with VP Liu on Tuesday. Alongside this, the Fed is widely expected to cut interest rates for the first time in a decade this week, but a 25 base point cut has already been priced into the market. The cut is seen as pre-emptive to protect the world’s largest economy from global uncertainty and ongoing trade pressures. A 50 point cut is extremely unlikely at this point but the Fed has recently voiced their extremely dovish stance on growth in current weeks. If the cut is by 50 basis points, expect movement in the USD to the downside.
This week is very data heavy and therefore a lot of volatility is expected across all the major currency pairs. Look out for US employment data, US Manufacturing PMI, European CPI data, GBP BoE Inflation reports and most importantly, US Trade talk escalations and Fed rate decisions.