Daily Brief

Daily Brief

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Fears trade deal could capsize

Choppy waters for sterling

If last week was one to forget, it appears to be more of the same for the pound today. With weekend reports that trade negotiations between the UK and EU may collapse within months, the pound saw little reason to celebrate the start of a new week.

Friction is building over the EU’s demand for ‘status quo’ access to the UK’s fishing waters, while Prime Minister Boris Johnson is insistent on a deal that would deliver on his promise of a hugely increased quota for British fisherman. This is proving to be one of the major sticking points in the UK-EU trade deal, which could provide even more uncertainty as we head further into 2020.

Economic activity in the coming days includes tomorrow’s GDP data, forecast at -0.3% MoM and 0.0% in the preliminary QoQ data. Index of Services figures are also expected, as are industrial production results (forecast at 0.3%). In addition, outgoing Bank of England Governor Mark Carney is set to speak at the Lords Economics Affairs Committee.

 

The award for Best Currency goes to…

After a stellar performance last week, the US dollar continued its dominance against the other major currencies, reaching a 3-month high against the pound. Positive economic data, and an avoidance of any slip-ups, were the catalyst for the dollar’s surge.

All eyes now turn to the two-day testimony of Federal Chairman, Jerome Powell before Congress. Investors will listen attentively to Powell’s testimony for any updates or hints about the central bank’s outlook. Thursday will see new Consumer Price Index figures, currently expected to have risen by 0.2% in January. Retail Sales data is also due out this week, pencilled in as a 0.3% rise MoM.

President Trump has also voiced his desire for an improved trade deal with the EU, and has even threated to impose tariffs on the bloc. Tensions could be further accelerated by the release of EU trade surplus stats at the end of the week.

 

Bad news for the euro

Economic headlines across the euro zone today will be dominated by Sentix Investor Confidence. Investors are expecting a slight drop in confidence from 7.6 to 6.1, which could add to the euro’s worries, alongside a -2.7% drop in Italian Industrial Production data and an uncertain election result from Ireland.  

While all eyes in Hollywood were on the Oscars, all those in Ireland were trying to decipher the results of the general election. The first round of results have indicated a win for Sinn Féin, with 24.5% of the vote, compared to Fianna Fáil’s 22.2% and 20.9% for Fine Gael. A coalition government with Sinn Féin has not been dismissed entirely by Fianna Fáil leader Micheál Martin, however much remains to be seen.

Tomorrow’s speech by European Central Bank President Christine Lagarde will again have investors studying the new President for any signs of bullishness or bearishness.

 

Recovery in the Asian markets

The Australian dollar continued its recovery as the weight of coronavirus fears around the world begins to lighten. Coupled with the intervention by the Public Bank of China and the resumption of some production in China, the Aussie enjoyed its respite, adding to last week’s gains on the pound.

The Yen has already gone some way to rebounding from last week’s slump. The Ministry of Finance announced a December current account surplus of 524 billion yen, up 12.8% YoY. This better-than-expected data was joined by the Bank of Japan’s 1.9% increase in bank lending (forecast at 1.8%).

Elsewhere Canada is enjoying its recent climb against the pound and euro, capitalising on their relative hiccups and even steadying the ship after Friday’s drop in oil price figures. The only highlight for the Loonie this week will be Bank of Canada Governor Stephen Poloz’s speech on Thursday.

GBP: Stormy seas for EU trade

GBP: Stormy seas for EU trade

EUR: Kept afloat, only just

EUR: Kept afloat, only just

USD: On top on all fronts

USD: On top on all fronts

AUD: Recovery as virus slows

AUD: Recovery as virus slows

JPY: Positive start to the week

JPY: Positive start to the week

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