To start the new week, the UK and EU met to discuss the terms necessary for the UK to obtain a free trade deal. With the two parties clashing in previous meetings, the road ahead for the UK looks bumpy and as a result the GBP has lost strength over no-deal jitters from investors. Meanwhile, the resilient euro continued to perform and gained off the back of the liquidation of ‘carry’ trades in emerging markets.
The euro suffered in previous weeks, but now looked to be mounting a turnaround this week. Last week saw the single currency trend higher than all major currencies apart from JPY. The euro’s biggest gains came after USD slumped, allowing the euro to climb higher amid the coronavirus fears. Emerging market currencies were sold, and stock markets declined into ‘correction’ territory across Europe and North America and faced 20% losses that could signal a ‘bear market’. With the ECB’s negative interest rates setting EUR up to be a popular ‘funding currency’, investors flocked to the currency in order to borrow and then sell in order to ‘fund’ bets on higher-yielding assets further afield.
Heading into the second day of the trading week, the euro held firm in its strong position above many rival currencies in the market. This includes the pound in which the euro looks to be set to record significant gains against following recent statements from the European Central Bank (ECB), which highlighted that they will mount a sizeable response to the coronavirus outbreak which lifted spirits for EUR traders. Meanwhile, the demand for the euro looked to have been maintained at the start of the week, which only lent to the euro’s recent strength as it awaited further data releases later in the week.
Wednesday saw the release of Germany’s and the Eurozone’s Markit Service and Composite PMIs, the outlook for EUR is looked less promising after these reports.
German services dropped from 53.3 to 52.5, with the composite PMI showing a drop from 51.1 to 50.7. Similarly, the Eurozone’s services PMI dropped from 52.8 to 52.6 with the composite figure staying put at 51.6, the same as the previous months figure.
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