The pound has had a mixed start to the week in what has been a fairly volatile start to 2020. Sterling started the week off on the back foot as investors and speculators allowed no deal Brexit concerns to creep back into exchange rates.
For those that have not been following the pounds movements over the past few years the phrase ‘no deal Brexit’ has often led to sterling weakness. With Boris Johnson’s comments on Monday suggesting that the UK would have ‘no need’ to follow EU rules on trade, concerns have risen that the two sides may not reach an agreement before the deadline on 31st December and may part ways without a deal.
Previously it has been suggested by many, including Governor of the Bank of England Mark Carney that this could be bad news for the UK economy and so when the possibility of a no deal Brexit rises the pound has tended to lose value, similar to what we witnessed earlier this week.
Bloomberg yesterday reported that the volume of turnover for sterling exchanges against the US dollar has hit a record high as the pound gains popularity amongst investors and speculators alike, citing that the pounds rapid changes in value had encouraged more investors than ever to trade the currency.
This also suggests that sterling is well and truly in the global spotlight, so any news for the UK concerning the economy or Brexit may have quite an impact on the value of the pound. It appears that the gains sterling made yesterday may have been down to an overreaction to Boris Johnson’s comments and the market correcting itself.
Euro exchange rates are in for a busy morning this morning, not only are they open to any Brexit based news, but we also have a flurry of economic data out over the course of trading this morning.
Firstly, we have services data from various areas around the Eurozone with the overall figure due out at 9am. Analysts expectations are that this data may be steady month on month, so any deviation from last months overall figure may lead to movement for the euro in early morning trading.
Later in the morning at 10am we also have retail sales figures (year on year). The current consensus figure is at 2.4%, an improvement of 0.2% against the previous reading, any deviation from the latest figure could cause some euro volatility.
Tomorrow morning, we also have new President of the ECB (European Central Bank) Christine Lagarde speaking at 8am. Generally, investors and speculators alike will be hanging off of her every word to try and second guess her next move with European fiscal policies.
We have seen an interesting week for GBP/USD so far, with sterling dollar turnover reaching a record high in the UK. Investors and speculators alike had been moving from sterling to dollars over the past week or so as a safe haven option, largely down to the growing concerns over the Coronavirus and how it may impact not only the Chinese economy but the global economy too.
When situations like this occur, you can tend to find that investors seek so called ‘safer haven’ currencies that offer less volatility and an element of security compared to those perceived as riskier currencies. Another safer haven is gold, which is also largely priced in dollars, a larger demand for gold can increase the value of the dollar, which we have seen in the past few weeks, a good example of this is that the dollar hit a 10 year high against the Australian dollar last week.
Coupled with ‘no deal Brexit’ concerns, sterling dropped into the lower 11.29s against the dollar at the start of the week but has since recovered back above 1.30 at the time of writing this report.
Today, US manufacturing data is released this afternoon, tomorrow some employment data is released in the afternoon and then on Friday the data really hots up, with the unemployment rate (expected to remain at 3.5%) and Non-Farm Payroll data out at 13:30pm which could potentially lead to a great deal of volatility for the dollar and all major currencies.
Non-Farm payroll data measures the number of people in non-agricultural employment (due to seasonality) and analyst’s predictions can be wildly out, so as soon as the data is released the market can seek to correct itself and the value of the dollar.
Following weakness for the Australian dollar in recent weeks, news that the Reserve Bank of Australia (RBA) decided to keep interest rates on hold gave the currency a slight boost.
Concerns surrounding the Coronavirus had impacted Australian dollar exchange rates quite badly due to the close economic ties between Australia and China and the likelihood that the virus would have a large negative impact on the Chinese economy.
GBP/AUD had been edging closer to 2 (reaching the 1.97 level) only to retract back down to 1.93 at the time of writing this report after news from the RBA.
The RBA kept interest rates on hold, and similarly to the Bank of England last week there had been a chance of a rate cut, so when that didn’t happen, we saw the Australian dollar gain strength.
For those that do not follow the markets, an interest rate cut generally weakens a currency, as it makes it less attractive to investors. With the cut not happening it gave a boost back to the Australian dollar.
There are plenty of factors impacting the GBP/AUD pairing at present both economic and political, if you would like to be kept up to date with the very latest developments then feel free to contact us today and we will be happy to keep you fully informed with factual information.
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