The pound lost ground yesterday in a sharp reminder of how sensitive the pound remains to views on the UK’s future trading relationships once it leaves the transitional period in December 2020. The prospect of no-deal saw sterling have its worst day in 7 weeks, dropping 1.32 % against the euro to 1.1723 on the interbank rate, and 1.5% against the US dollar at 1.2959 on the interbank rate this morning too.
Boris Johnson underlined his commitment to forge a new trading relationship with not just the EU, but the wider world, based on the pursuit of global free trade. With the UK now out of the European Union and into the transitional phase, which will keep all existing rights and obligations the same until December 2020, there is a great deal of pressure to determine what January 2021 will look like in terms of the UK’s trading position with not just the EU, but also the rest of the world.
As to whether this decline will continue, Jordan Rochester of Nomura Bank, quoted in The Times this morning stating, “A renewed focus on Brexit and the level of long sterling positioning encourages us to expect a further fall in the short term”, indicating there could be more challenge ahead for the pound.
There was positive news for the UK yesterday morning with Manufacturing posting a 9-month high in a closely watched survey, underlining that the UK economy is so far on a more positive footing as we enter 2020. Today at 09.30 am is the latest Construction survey, and tomorrow the most important Services sector data, also at 09.30 am. Services is the most important since it accounts for around 80% of the UK economy and the news provides a good indication of the overall health of the UK economy.
As many predicted, a focus on the detail of the UK’s future trading relations ahead has proved difficult for the pound to manage, and investors have taken flight over the news. Yesterday proves how quickly the currency market can change and the importance of remaining in contact with your account manager and our team here, to highlight the latest news.
2020 is a US election year, and yesterday the Iowa Democratic caucus took place providing an early insight into who might win the Democratic candidate race and get to take on Trump in November’s election. The results are still being finalised as we speak, with technical problems causing a delay to the results. The US dollar may experience volatility ahead on this news, since the economy has done well under Trump and the market will be keen to learn of any change in leadership, which may impact how the country and the economy is run.
The US dollar has been stronger in some cases lately, partly down to the uncertainty of the Coronavirus, as investors buy up this safe-haven currency, as a shield to potential volatility elsewhere. Key news for the US economy and US dollar this week will be Friday, with the latest US Non-Farm Payroll number and Unemployment data for the United States, which can often be a market mover for the US dollar and many other currencies.
Looking to the global economy, the Coronavirus is now a key concern with the commodity currencies like the Australian and New Zealand dollar having lost ground recently. To combat the uncertainty, the Chinese government pumped 1.2 trillion Yuan (£131 bn) into the Chinese financial system yesterday which did initially reverse some of the losses seen on these currencies.
Whether it will be enough will perhaps only be determined by how bad the spread of the virus becomes, it is currently showing no signs of slowing down and this might further influence the commodity currencies mentioned, plus the safe haven currencies like the Swiss franc, Japanese yen, and US dollar, all of which have strengthened in the face of this outbreak.
China accounted for about 4% of the global economy in 2003 during the SARs virus, it now accounts for about 16%, representing a much bigger influence on the global economy, and potential for adverse economic conditions in China to ripple across the world and through the currency markets.
Overnight, the RBA (Reserve Bank of Australia) kept interest rates on hold, despite mounting global concerns over the Coronavirus and how it might influence Asian economies which are key purchasers of Australian raw materials, notably China.
Whilst the Australian dollar has strengthened on the news, a future cut is widely expected with Reuters reporting the probability for a May interest rate cut is 100%. The RBA in their commentary pointed out that with the Coronavirus continuing, and the economy still counting the cost of the terrible bushfires, the RBA might need some ammunition up their sleeve for the future.
For more information on all the events to move your exchange rate, please speak to our team to learn more.
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