Daily Currency Update

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Rate cut percentages are heading higher for the UK following big misses yesterday

GBP - British Pound

Rate cut expectations for January have jumped to 46% following the Bank of England comments late last week and into the weekend. Sterling was looking to fundamental data on Monday to hopefully stop the slide in its value. This came in the form of month on month GDP where a forecast of 0% was on the cards. In fact, the UK economy unexpectedly contracted by 0.3% in November, adding to this, the UK manufacturing and industrial production also missed expectations by a big margin. Manufacturing output arrived at -1.7% MoM in November versus -0.3% expectations and +0.5% booked in October, while total industrial output came in at -1.2% vs. -0.1% expected, so all in all didn't make for great reading.

With Boris pushing for a transition period to be wrapped up by the end of the year, an unlikely scenario as quoted by EU officials, its clear Sterling could be heading for further selling pressure. This time last month cable was testing 1.35 following the election and since then those gains have all but washed away and it appears the 1.30 handle is the new resistance level. With a rate cut on the horizon (end of Jan) Sterling will do well to remain close to 1.30 as market jitters begin to take hold.

We don’t have anything on the docket for UK releases today so it will be case of the pound finding its feet but with this feeding off past and future probabilities its looking like we could be heading for a day of selling pressure.

Key Movers

The risk-on sentiment extended into Asia this Tuesday after the US Treasury retracted its decision in August to designate China as a currency manipulator. The market mood was given another lift with the imminent sign off on the phase one trade deal between the US and China due to take place on Wednesday.

Attention now turns to the US CPI release at 1.30 today as investors prepare for a heavy week of domestic data points, headlined by CPI inflation data today and Core Retail Sales data Thursday. Softness across these data points will affirm suggestions the US economy is shifting nearer recession and subsequently increase the likelihood that monetary policy amendments will be required at some point through 2020.

Expected Ranges

GBP/USD: 1.2920 - 1.3010 ▼

GBP/EUR: 1.1610 - 1.1680 ▼

GBP/AUD: 1.8740 - 1.8840 ▼

GBP/NZD: 1.9490 - 1.9610 ▼