Daily Currency Update

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Sterling under pressure after a good run

GBP - British Pound

Sterling fell on Monday as rising fears about the economic impact of the coronavirus encouraged investors to seek safety in the US Dollar. The British pound dropped as investors scrambled out of assets deemed riskier in favour of the dollar as many analysts see the US economy as relatively well-shielded should the coronavirus hurt global growth significantly. The pound’s weakness on Monday was largely a dollar strength story, with hedge funds turning cautiously optimistic on sterling in recent weeks. The latest figures show funds have ramped up long positions in the pound to near two-year highs.

The pound has been supported in recent weeks by better-than-expected economic data and growing expectations that the new UK finance minister will announce more spending at next month’s budget. However, broad dollar strength and ongoing concerns around Britain's trade talks with the EU have pulled back recent gains.

ING analysts said in a recent research note that, 'a quiet week in terms of data releases is going to leave space to the other two key drivers of GBP: UK-EU trade negotiations and hints about the content of the upcoming UK budget. We suspect both will hardly come to the support of the pound, as the negotiations may enter an even more confrontational phase and the government is unlikely to endorse the market’s high fiscal hopes.'

Key Movers

German GDP came out as expected at 0% for Q4 of 2019. This was a timely reminder of the economic weakness across Europe that looks to spill into Q1 2020, with the disruption from the virus outbreak.

US markets saw one of the worst declines in almost 2 years yesterday and the dollar lost some of the gains it made through Monday morning after investors sharply raised bets that the growing fallout from the coronavirus outbreak would prompt US interest rate cuts.

“Overnight there was a bit of panic over the risk of the virus going global,” said Bank of Singapore analyst Moh Siong Sim. “I think we’re back to assessing how this situation is going to pan out from here...we’re just taking it as it comes.” Countries around the world are stepping up efforts to prevent a pandemic, as infections tick past 80,000 people, 10 times more cases than SARS. Almost all of the infections are in China but recent sharp rises in cases in South Korea, Italy and Iran sent markets into a tailspin on Monday.

Futures for the Federal Reserve funds rate have surged to price in a rate cut by June and more than 50 basis points of reductions by year end. This has paused for thought in the recent rush to buy dollars.

Expected Ranges

GBP/USD: 1.2910 - 1.3080 ▲

GBP/EUR: 1.1920 - 1.1990 ▲

GBP/CAD: 1.7180 - 1.7330 ▲

EUR/USD: 1.0760 - 1.0880 ▼