Following Boris Johnson’s victory in the general election we saw sterling make significant gains against the majority of major currencies.
Since then however, Boris has stated he is willing to play hard ball in talks with the EU on trade as looks to gain a similar trade agreement to that of Canada’s. He has also gone as far to say there is no need to follow EU rules on the matter.
This is not the best news and has done little to give investors’ confidence in sterling. Johnson’s stance means that a no deal scenario is still on the table and while this remains the case, the pound could remain fragile until we have clarity on the trade situation.
Judging by what has happened in previous negotiations surrounding Brexit we have seen talks go right down to the wire, only to witness an extension. If an extension is to take place it must be agreed upon by 30th June.
Johnson has been adamant an extension will not take place, if he sticks to his word this could mean a higher probability of a no deal scenario which in turn could mean a prolonged period of fragility for sterling.
The pound made gains against the euro yesterday following less than impressive Retail sales data from the Eurozone. Year on year data was predicted to land at 2.4% and came in at 0.9%, month on month was predicted at - 0.9% and landed at - 1.65.
There are many GBP-EUR purchasers that could be at present holding fire, hoping to see GBP/EUR edge above 1.20. It should be noted that 1.20 has been a firm resistance point over the last few years.
GBP/EUR has only hit such levels following Johnson’s victory in the general election, previous to that you would have to go back as far as early 2016 to see GBP/EUR above 1.20. With the PM’s current stance on Brexit it could prove tough to breach again.
Newly appointed European Central Bank (ECB) President, Christine Lagarde is due to speak this morning. Her speech will be keenly watched by investors as she could provide hints to the ECB’s monetary policy moving forward, especially as it is so early in her tenure and she may wish to set out her stance.
This could cause volatility on the currency market so it could prove wise to monitor developments as they unfold.
Later this afternoon we will witness the release of numerous employment figures from the US which could alter the value of the US dollar so could be worth keeping an eye on. We will see jobless claims, Nonfarm productivity (labour figures, disclosing the agricultural sector) and Unit Labour costs. The results are expected to show a rise which could cause US dollar strength.
Following the Labour figures, we will hear from Federal Reserve Bank of Dallas CEO, Robert Steven Kaplan. If Kaplan gives anything away as to how the Federal Reserve will be handling monetary policy in the future this could influence the dollar.
In the evening we will see the Reserve Bank of Australia (RBA), Philip Lowe’s speech. It will be interesting to see his response following the recent decision from the RBA to keep interest rates on hold. The waters are still murky surrounding the Australian economy and also the impact the coronavirus on investor confidence.
Australia’s heavy reliance on China purchasing its goods and also the Australian dollars reputation as a riskier commodity-based currency has caused AUD weakness following the coronavirus outbreak.
There could however be potential gains for the Australian dollar following positive news in regards to treatment of the virus.
News has emerged that H.I.V and flu drugs show promise in treating the coronavirus. Li Lanjuan of China’s Health Commission will propose the combination of Darunavir and Arbidol as the government’s new treatment plan.
Scientists in the UK are also claiming a significant vaccine breakthrough providing optimism that the virus may be better contained.
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