Daily Currency Update

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Pound holds on to last weeks gains

GBP - British Pound

The Pound has held on to its gains as we move into the new working week. Sterling was given a lift at the back end of last week following the surprise resignation of Chancellor of the Exchequer, Sajid Javid. His successor was quickly named as Rishi Sunak, tory MP for Richmond, Yorkshire, who was formally Chief Secretary to the Treasury and seen as a die-hard Johnson loyalist. Its widely expected the change will bring a loosening fiscal policy therefore encouraging the Bank of England to refrain from any further rate cuts. Whilst this is a story that will help drive Sterling higher there are still many variables adding to the mix, trade talks being a major player.

Cable is still in 1.30 territory and we see this level being held through most of the day. GBP/EUR broke new ground touching a high of 1.2047, a level last seen back in June 2016 and still holding above the 1.20 handle this morning.

There should be lots to talk about this week and the potential for a lot of volatility for the quid. We have a raft of top level economic releases, the first coming tomorrow in the form of average earnings and the unemployment rate. We follow this up with CPI year on year, retail sales and flash services and manufacturing PMI as the week progresses.

Key Movers

The slowdown across the Euro zone area is playing havoc with the single currency and the bearish move on EUR/USD continued as we closed the week on Friday. Reports recently have suggested that ECB members are talking over the feasibility of an insurance cut as an alternative to the expansion of the existing QE programme. Some additional drivers include increasing political risks from Germany to Ireland; worries that the U.S. could impose import tariffs on European cars; and, data showing that Germany’s economy stagnated in late 2019. The pair has seen a significant move lower over the last few weeks, hitting a 23 month low but this morning’s moves have halted as the pair now trades sideways. However, the Euro’s drop is running faster than the rise in the U.S. dollar, which makes the EUR/USD pair a candidate for a likely reversal if the economic data in the U.S. starts to show some cracks.

We observe presidents day in the US today so a public holiday will create a thinner trade for the greenback. The coronavirus is still one of the biggest plays in the FX market at the moment and the Dollar will continue to flex its safe haven status whilst new cases are confirmed. This week in particular will be particularly important as we begin to receive the first data points since the outbreak. First up will be Korea exports and then we will see the European PMI’s, this will help us assess manufacturing confidence since the news of the virus first hit the wires.

Expected Ranges

GBP/USD: 1.3010 - 1.3110 ▲

GBP/EUR: 1.1990 to 1.2100 ▲

GBP/AUD: 1.9350 to 1.9500 ▲

GBP/NZD: 2.0180 to 2.0390 ▲