GBP/EUR interbank exchange rates reached the lowest levels seen since mid-November of 1.16329 yesterday, following its steady decline since it was suggested that the Bank of England could look to cut interest rates at this month’s meeting on 30th January.
Three members of the Monetary Policy Committee, Mark Carney, Silvana Tenreyro and Gertjan Vlieghe, have all suggested that the recent slowdown for the UK economy could prompt a cut in interest rates in order to stimulate growth. They could join the two members who opted for a rate cut in November, Michael Saunders and Jonathan Haskel, and the odds of which have moved from 5% last week to 52% following these comments. Michael Saunders will be giving a speech this morning, and sterling could weaken further if any further suggestions to a rate cut are made.
Boris Johnson also rocked the Brexit boat yesterday in his first media interview this year, suggesting that there could be a chance that the UK would not agree a trade deal before the December 2020 deadline. He changed his stance from his December election campaign where he viewed the chances of a no deal Brexit being ‘absolutely zero’, to being ‘epically likely’ that a trade deal would happen. His comments could cause concern for UK businesses. If no trade deal is reached, the UK would begin trading with the EU on WTO (World Trade Organisation) terms in January 2021 which could cause severe disruption to UK businesses.
This morning, UK Inflation figures in the form of Consumer Price Index will be released for December and are expected to remain the same as the previous year at 1.5%. Any deviation from this figure however could cause volatility for sterling exchange rates.
European Trade Commissioner Phil Hogan has travelled to Washington this week, in order to try and ease tensions between the EU and the Trump administration over aircraft subsidies and tax. This will be Hogan’s first visit to the US since he took over the role on 1st December and will coincide with the signing of the US-China trade deal today. The US and EU are at loggerheads after the US threatened to hit $2.4bn of French exports including champagne and cheese, with additional tariffs.
A spokesperson to the European Commission said on Monday that the trip this week could be “a stepping stone in an effort to refresh and invigorate a positive transatlantic trade relationship”. Should discussions go well between the two, we could see some positive movement for the euro.
US Inflation figures released yesterday showed that Consumer Price Index rose by 0.2% in December, bringing the annual rate to 2.3%. Although this was a little lower than expected and the previous month’s reading, this is unlikely to cause the Federal Reserve to change its policy stance as it’s still very close to the FED’s target of 2%. According to analysts at FX Street, “while Inflation may not be taking off, it is not catapulting either”.
The US and China are set to release their ‘phase one’ trade deal on Thursday, which is hoped to be the beginning of the end of a long, drawn out trade war. We could see the USD strengthen if details of this deal are taken positively by the markets.
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