Daily Currency Update

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The pound drops on rate cut fears

GBP - British Pound

Sterling ended the week on a weaker note and not much has changed on Monday morning. Cable has slipped below 1.30, the 1st time since the 27th December. Mark Carney's dovish comments last week started the cycle of decline and this was given a helping hand by other senior officials over the weekend. Silvana Tenreyro suggested that the central bank may have ended their Brexit moratorium and be edging towards a rate cut. Bank of England policymaker Gertjan Vlieghe was reported saying in an interview with the financial times that he will vote in favour of a looser monetary policy when the committee meets later this month. "I really need to see an imminent and significant improvement in the UK data to justify waiting a little bit longer," Vlieghe said.

As mentioned above, cable slipped below 1.30 hitting 1.2989 and GBP/EUR followed suit. This pair fell below 1.17 hitting a low of 1.1678, a level last seen on Christmas Eve.

As for the week ahead, it’s a busy one for the pound. Given the recent comments from BOE officials this could place heightened scrutiny on the data releases therefore causing a choppy trading week. Today sees the release of GDP m/m where 0% growth is expected, a number that follows December's 0% and November's negative 0.1%. Year on Year inflation is out on Wednesday where an increase of 1.5% is pencilled in. We close the week off with the release of the monthly retail sales, this will be closely watched. In the three months to November 2019, the quantity bought in retail sales decreased by 0.4% when compared with the previous three months so here’s hoping the Christmas period has boosted the industry. It’s been widely reported foot flow across the retail sector has experienced a sharp decline and with the uncertainty of Brexit consumers have cut back.

Key Movers

Across the pond on Friday we saw a raft of employment data released. The all-important non-farms didn’t impress, creating only 145k jobs, this missed the forecast of 164k. The unemployment rate remained unchanged at 3.5%, but wage growth slowed to a pace of 0.1% last month, missing expectations of 0.3%. The numbers did little to move the FED from the sidelines so the Dollar did little on the back of the release.

Over in Canada, the roles were reversed as employment change came back better than expected at 35.2k opposed to 24.9k, and their unemployment rate dropped from 5.6% from 5.9% last month

China and the US have agreed to hold semi-annual talks to iron out any concerns and implement any changes. Trump has confirmed these talks will be separate from phase-two trade negotiations. Trump also added that the phase-two negotiations with China will start right away but he might want to wait until the end of the 2020 presidential election to finalise it.

The antipodeans have started the week off on the front foot with GBP/AUD dropping from 1.91 to 1.88 in the space of a week. The Aussie jump was largely down to a weaker pound but was helped by inflation figures and an upbeat S&P report on the country’s sovereign credit rating. The damaging wildfires that still rage are expected to have a damaging effect on the economy so may keep the Aussie from advancing on its own going forward.

Expected Ranges

GBP/USD: 1.2960 - 1.3020 ▼

GBP/EUR: 1.1650 - 1.1700 ▼

GBP/AUD: 1.8750 - 18850 ▼

GBP/NZD: 1.9520 - 1.9620 ▼