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GBP recoups losses on positive UK/EU trade rhetoric

GBP - British Pound

The pound couldn't really make up its mind in early trading yesterday as markets continued to digest the US Federal Reserve bank's surprise 50-bps interest rate cut.

GBP/USD started the day just under the 1.28 handle but fell to a low of 1.2770 after February’s UK Markit Services PMI posted a slight drop from the previous month.

Across the channel, Eurozone Services PMI also came in slightly lower than the previous month's figure and this saw GBP/EUR trade a tight range, 15 pips either side of 1.1475, for most of the day.

Over in the US, a better than expected ADP employment report plus a jump in the ISM Non-manufacturing index helped to shore up investor confidence.

At the same time US data hit the wires, the Bank of Canada announced they were cutting interest rates by 50 basis points in a bid to provide markets with further confidence in the wake of the Coronavirus outbreak.

The news combined with market expectations that other central banks will soon follow suit, saw a surge in risk appetite, with GBP being the main benefactor. Sterling was then further helped after an EU trade official said UK/EU trade talks were off to a good start.

As a result, GBP/USD pushed back above 1.28 and is now making a run towards the 1.29 level. GBP/EUR has also jumped, currently sitting over a cent higher than yesterday open, at 1.1575.

Looking ahead to today, a lack of data from both the UK and Europe will see attention focused on Jobless claims and Factory Order numbers from the US.

Key Movers

Apart from Sterling, the Australian dollar also made favorable gains following the Bank of Canada announcement. Having trended lower, the AUD rebounded after fourth quarter GDP printed above expectations and a resurgence in appetite for risk prompted another upward drive.

Following interest rate cuts from both the US and Canadian central banks, markets are now are pricing in a 90% chance of a 10-basis point from the ECB, in their meeting next week. These expectations sent the Euro lower against most of its major peers through Wednesday, with EUR/USD falling just under half a cent to 1.1140.

Attention now turns to US Jobless Claims and Factory Orders from the US, ahead of tomorrow’s headline news in the form of US Non-Farm payrolls.

Expected Ranges

GBP/USD: 1.2850 - 1.2950 ▲

GBP/EUR: 1.1540 - 1.1630 ▲

GBP/AUD: 1.94 - 1.9550 ▲

GBP/NZD: 2.0380 - 2.05 ▲

GBP/CAD: 1.7245 - 1.7345 ▲