Investors show optimism ahead of Q4 GDP
After a challenging week last week and a tough start on Monday due to Brexit pressures, the pound made some gains later in the day. It wasn’t all plain sailing for sterling; in the Asian session, GBP/USD fell to a two and a half month low before steadily regaining some of the lost ground. The GBP/EUR made a faster recovery in the same day. Investors seem optimistic about the pound despite reports on the challenges of the upcoming Brexit negotiations.
The market appeared confident that positive results will be announced today regarding the UK’s Q4 economic performance despite many analysts suggesting that the economy is expected to have stalled. The hope is that the UK results will contrast with the more muted results from across the Eurozone. The Eurozone's Sentix investor confidence gauge fell from 7.6 to 5.2, which gave assistance to the pound as investors considered the global picture.
All about trade
Ahead of the Brexit negotiations to be held on 3rd March, there are reports that the EU may clear euro contracts from London and withdraw concessions made to the UK in the MiFID 2 financial regulations. This isn’t the only area that is putting pressure on the pound this week, however. Reports that the US are unhappy with the PM’s appointment of Huawei for the UK’s 5G network do not augur well for the promised UK-US trade deal.
Any delays to the Brexit negotiations and those with the US may put pressure on sterling, particularly if the Q4 GDP results offer some disappointment. Particularly against the US dollar, which is making gains as a safe haven due to coronavirus concerns, the pound may be in for some challenging times which reflect the tough talking of these negotiations.
Economic effects of coronavirus continue to weaken Chinese economy
The impact of the coronavirus on the Chinese economy and beyond is being watched closely by investors. Investors are looking for signs that the virus has ceased to spread and in the meantime, the US dollar is making significant gains against a basket of commodity-based currencies impacted by the situation in China.
The greenback is riding high on risk sentiment and backed by positive results such as the recent non-farm payroll data. However, the issue is less positive for commodity-based currencies. The Australian dollar fell to lows not seen since 2009 yesterday and the Canadian dollar touched a four-month low against the US dollar due to concerns that the outbreak would hit Canadian tourism, the oil industry and supply chains.
RBNZ policy decision due tomorrow
The New Zealand dollar is weakening ahead of the scheduled Reserve Bank of New Zealand (RBNZ) announcement tomorrow. The expectation is that the effects of the coronavirus will be taken into account and that the statement may be more bearish than recent decisions. The expectation is that the rate will remain at the record low of 1% and that the RBNZ will sound a note of caution despite Finance Minister Grant Robertson’s assurance that the kiwi economy is well placed to weather the storm of the coronavirus.
Elsewhere on the agenda, US Federal Reserve Chairman Jerome Powell begins two days of testimony to congress ahead of inflation data releases on Thursday, with the expectation that the focus will be on the impact of the coronavirus on the global economy and the effects for the US. Powell’s EU counterpart Christine Lagarde is also speaking at the EU parliament, and outgoing Bank of England Governor Mark Carney is speaking in the Houses of Parliament although investors do not expect any surprises in either speech.