Daily Currency Update

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The Pound drops and safe haven status called into question

GBP - British Pound

It was a tale of two halves for the pound during Thursdays trade. With Sterling on a charge this week following better than expected average earnings it was the turn of the inflation reading to continue the trend. On the face of it this was the case, inflation rose to a 6 month high helped by petrol and house price rises. The index moved from Decembers 1.3% to 1.8%, a reading of 1.6% was forecast. Still below the BOE’s target of 2% it was met with renewed optimism as rate cut fears in March continue to recede.

Cable bounced after the release hit the wires breaking back above the 1.30 handle and hitting a day’s high of 1.3019. The gains were short lived, perhaps largely due to the fact its still short of the 2% target. Brexit concerns, coronavirus uncertainty and fiscal uncertainty also had a part to play as we saw the pound drop throughout the day, breaking below 1.30, then 1.29 and now trades at 1.2895 which is the lowest level we have seen in 10 days.

With the outlook for Sterling looking increasingly uncertain its moves will largely be ‘data driven’, this has the potential to cause short spikes and sudden drops, not making it easier to dictate its path. With that in mind we have the month on month release of retail sales due out at 9.30am. The last time we saw an uptick on this release was back in August and with a forecast of 0.7% increase its hard to see this could be the reality. Its been well documented the retail sector has struggled and the likes of the Christmas period and Black Friday have failed to materialise into any sort of improvement. It will be twitchy times leading up to the release and anything short of the forecast could see a sterling sell-off.

Key Movers

The Federal Reserve released their monthly meeting minutes last night and noted that the current stance of monetary policy is appropriate. Holding rates between a range of 1.5% and 1.75% will give Chairman Jerome Powell time to analyse the current impact of the coronavirus for the local economy. Core United States Producer Price Index for the year rose to 1.7% from 1.1% and rose 0.5% on a monthly basis, continuing the recent theme of positive economic data for the start of 2020.

The greenback was also seeing the benefits of a mass exit from the JPY. The Yens ‘safe haven’ status was called into question largely due to the country being so close to China and the epicentre of the coronavirus. The idea now is for investors to move their capital as far away from china as possible. Yen/Dollar has taken a hammering overnight and AUD/USD hit an 11 year low. The Aussie sentiment was also dented by the revival of the Reserve Bank of Australia’s (RBA) rate cut expectations after the country’s Unemployment Rate ticked higher to 5.3% last month.

The Euro has continued to come under selling pressure as economic fears still persist. EUR/USD still trades under the 1.08 handle and attention will now turn to the European Central banks meeting minutes released at 12.30 today.

Expected Ranges

GBP/USD: 1.2810 - 1.3010 ▼

GBP/EUR: 1.1890 - 1.2050 ▼

GBP/AUD: 1.9380 - 1.9510 ▲

GBP/NZD: 2.0220 - 2.0430 ▲