GBP - UK posts positive economic data but Brexit worries hold the currency back, UK Govt pledges to increase spending

The UK government saw a cabinet reshuffle last week which saw the new Chancellor, Rishi Sunak take charge. The market predicts that the UK government will include its public sector spending plans going further into the new year to boost the economy and support sterling. But investors will remain wary of the threat that Brexit poses, with post-Brexit trade agreements still yet to be agreed upon.

With GBP performing in recent economic releases like the UK’s consumer price index, retail price index and retail sales figures, the currency looks to be heading in the right direction. Sterling strength amassed following the “Boris Bounce” post-election in which the Conservative government highlighted that the UK economy would rise in 2020 as Brexit paves the way for new opportunities. Whilst the support has helped the GBP, there is a lot for the pound to live up to, and should it fail to impress investors in the months to come, the currency could potentially see a drop in support as the number of Brexit doubters increase.

Investors concerned about the GBP in the long run

Investors concerned about the GBP in the long run

GBP has had its recent gains limited by an unsettled feeling amongst investors concerning the UK economy in the long-term. Sterling has been resilient against many of its major rival currencies this week, but it has ceded ground to the USD whilst also coming under pressure from the Canadian dollar and Swiss franc. Strategists have noted that the UK’s economy narrowly avoided contraction in Q4 GDP figures in 2019, which provided relief for GBP. But with consumption experiencing its weakest quarter since 2015, the avoidance of a negative GDP reading was largely a function of an aggressive uptick in government spending.

EUR - Poor run of domestic data sees the euro drop in the trading tables

The euro has suffered losses throughout February, losing around 2.39 percent of its value so far in the first two weeks of the month. Friday 14th saw the single-currency end the week with a drop of 0.10%, hovering near a 34-week low. The euro’s poor performance follows an ugly week on the economic front last week. The Eurozone’s economic data also partnered with the global effects of the coronavirus epidemic has caused a worldwide slowdown.

The euro kicked off its trading in the new week on the back foot following last week’s lacklustre performance from both Germany and the Eurozone’s economic releases. Despite the European Central Bank (ECB) President Christine Lagarde highlighting the positive effects of the Bank’s policies on the Eurozone economy, the optimism didn’t last long as the following day unveiled shocking domestic results. The Eurozone’s industrial production fell by 4.1% in 2019 continuing the downward trend of last year’s 1.7% drop. Meanwhile, Friday saw the German GDP figure at 0% during Q4 of 2019.

Euro falls to 3-year lows against the US dollar

As the euro passed mid-week, it still struggled to find a rallying point to drag itself out of its recent poor performance. After tumbling lower than 1.08 against the US dollar for the first time in three years, the euro looked out of luck. The euro’s bad luck this week could continue as it may only be the first milestone in its downward spiral, with global news flow, economic data and option market positioning all seemingly stacked against the single currency. With releases like the German producer price indices and Gfk consumer confidence survey doing little to help the struggling currency, as they displayed declines and stagnation across the board.

Ending the week, the euro has been labelled as one of the week’s worst performers, and the currency’s recent weakness has been observed by the market, causing the single currency to sink. The euro’s ECB meeting minutes which arrived on Thursday appeared to set a bearish tone for the euro, despite earlier rallies as major economy bond yields lifted off earlier lows. Many figures in the ECB are calling for a rise in expenditure over the next multiannual-financial framework which will cover a period in which the bloc has one less member to be concerned with (Britain).

USD - US dollar edges over under-performing euro

USD - US dollar edges over under-performing euro

The USD benefitted in its exchange rate pairings against the euro during the course of this week as the single currency continues to struggle to find a rallying point to lift itself out of a pit of pessimism. The EUR/USD exchange rate just managed to navigate above earlier YTD lows in the proximity of 1.0820 levels, last seen in April 2017. The fears of the coronavirus have kept the USD maintaining strength as investors flock to the currency as a safe haven whilst the markets risk sentiment remains ‘off’ for the majority. The Eurozone looked towards the German ZEW survey for the next data release to influence the shift of the currency. But, results only showed more disappointment for the euro investors, which damaged the euro’s optimism even further.

USD continues to benefit from coronavirus fears, but China’s evidence of a slowdown could see the USD lose support as risk sentiment returns

The USD continued to hold its strength as the coronavirus raged on. Despite recent evidence which has displayed a slowdown in the number of cases and deaths in the Wubei province of China, the world is still on edge and investors are very aware of the risk of a resurgence which could knock the confidence of the global growth once more. However, with evidence to suggest there might finally be a slowdown concerning the virus, the market’s risk sentiment slowly begun to creep back up throughout the week, allowing risk-sensitive currencies like the CAD and AUD to benefit once again. As investors entrusted these currencies once more, it meant that investors that resided with the USD as a safe haven began to filter out, which caused a slight decline in support for the US currency.

US manufacturing data jumped to a nine-month high

This week also saw the Empire State manufacturing survey jump to a nine-month high after the index rose by 8 points to a better-than-expected 12.9 this month, after a disappointing second half of 2019. The US’ recent performance in the economic data front has been admirable, which has boosted the currency in its efforts to remain as one of the week’s best performers.

AUD - Australian dollar value remains under pressure

The Australian dollar (AUD) exchange rate continues to remain under pressure at the start of the week, trading flat against many other major currencies. The Aussie received some support from investors as the statistics of the Covid-19 virus were analysed, showing a slowdown in the infection rate. The number of new deaths fell from 139 to 100 on Monday suggesting a slowdown in severity of the disease. Furthermore, the Chinese authorities tightened their control on movement in the affected areas, with the use of private cars in Hubei being prohibited. Investors hoped that the reduced fears could help lift the AUD as the market returned to a risk-on sentiment.

As time passed throughout the week, little news surrounding the Coronavirus surfaced. This caused investors’ fears to decrease. This helped AUD out as it gave the currency room to breathe and lightened the pressure placed upon it. China also calmed the market after announcing its promise of further policy stimulus to offset the economic impact of the coronavirus outbreak. Further support for AUD came after the number of new cases in China was the lowest since 23rd January, providing the market with signs of a slowdown in the spread of the disease.

AUD drops mid-week after Apple revises guidance, South Korea declares an economic emergency and unemployment spikes

AUD drops mid-week after Apple revises guidance, South Korea declares an economic emergency and unemployment spikes

The Australian dollar fell around mid-week after witnessing a drop in the value for the Chinese Yuan. Being significantly linked with Chinese trade, Australia has suffered following the decrease in productivity from the world’s second largest economy. The Chinese Yuan fell after Apple told investors it will not meet earlier guidance due to coronavirus-related disruptions to its business in China, and South Korea declared an economic emergency. Strategists at Westpac highlighted that fragile industrial commodities and the China travel ban stand to threaten each of Australia’s top 5 exports (coal, iron ore, LNG, education, tourism), they also pointed to a collapse in the trade surplus starting in the January data.

To end the week, AUD was down, with markets predicting the struggling currency could tumble further over the coming weeks as financial markets price-in an interest rate cut from the Reserve Bank of Australia (RBA) as a direct response to the disappointing January jobs report which showed an uptick in Australia’s unemployment rate. The Aussie dollar was down against all of its major rivals including GBP following a larger-than-expected spike in the unemployment rate for January. As a result, the Australian dollar exchange rates fell.

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