After seemingly seeing bets on the Bank of England cutting interest rates ease last week, and also supported by a batch of positive UK economic data released this helped the pound reach its highest levels seen since just after December’s election result, the pound has again seen its value tested.
In the run up to The Bank of England’s decision on Thursday afternoon, concern has mounted once more that the bank could be about to cut rates for the first time since August 2016. This was when the bank first warned of the possible set back Brexit could have on the UK economy following the vote to leave in May of that year. The cut was later reversed the cut by hiking rates 15 months later.
Could Mark Carney’s swansong be to convince enough of the bank board members to vote for an interest rate cut to 0.5% on the eve of Brexit to boost what they see as a stalled economy? The market now sees it as close as a 50/50 chance of a cut or not as Carney takes the seat for the last time before his departure. These odds have seen the pound on the back foot dropping from last weeks highs achieved against the US dollar and euro.
The UK is set to depart the EU on Friday at 11pm ahead of an 11-month transition period during which Boris Johnson will seek to strike new trade deals with the EU and the rest of the world. The tone of the negotiations over the transition period is likely to be reflected in the pounds value, with Boris Johnson attempting to reassure he can ‘get the deal done’. However, failure to get deals done by the end of the year will not mean further delays or another extension, with more likely the no deal option representing itself.
The euro has escaped much focus with so much attention on the UK this week, as the markets eyes are firmly on Thursday’s Bank Of England interest rate decision, Britain’s EU exit and the US Federal Reserve meeting this evening in sight pushing any low key euro data firmly to the back of minds for the foreseeable future. There were no actual data releases for the Eurozone on Tuesday; with Wednesday seeing consumer confidence for Germany and the Eurozone the only scheduled releases.
The euros status as one of the safe haven currencies along with the USD did see it receive a slight boast as investors remained concerned about the of outbreak of the Chinese Coronavirus, with reports of the death toll in China rising to 132 and confirmed cases up to 4515, at the time of writing. Cases have also been confirmed in Germany and the UAE as the virus continues to spread.
The US dollar gained support yesterday with the latest data showing US Durable goods orders rose massively above expectations. The consensus for December was a rise of 0.3% but was confirmed at 2.4%. The unexpected result was mainly seen in the transport category, where high volatility resulted in a rise of 7.6%.
The US Federal Reserves meets later this evening, with the Central Bank expected to keep its base rate on hold again for a second consecutive month after 3 back to back rate cuts between July and Oct of last year. ‘’We expect changes to the FOMC statement to be fairy minor, resulting in a similar message to the one sent in December” said TD Economics. With trade tensions between the US and China easing for now, it has helped take pressure off the FED to take further action, which in turn has helped the dollar remain relatively strong against the majority of currency pairs, with no further cuts currently in sight. The market will be keen to hear what comments are made in the Fed Chairman’s statement with the hope significant clues may be heard regarding the Feds outlook for the US economy for 2020 and any potential policy changes to expect.
Be sure to keep in touch with your trader for updates on how this may affect you next transfer and discuss the option of getting a limit order in the market ahead of the evenings events by the Fed, the Bank of England meeting on Thursday and the UK finally set to ring the bell for our exit from the EU at 11pm on Friday night.
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