It was a tough week for UK economic data with Gross domestic product (GDP) numbers dropping to 0.3% from the expected 0.4%, average earnings fell to 3.6% from 3.8% and inflation dropped from 1.5% from last months 1.7%.
The pound marched on against the euro and reached a 6-month high, which is good news for our clients that are purchasing property overseas.
The recent announcement by Nigel Farage to not contest seats won by the Conservatives in the last election has provided Boris Johnson’s Conservative party with a boost. The pound has reacted positively to the news, therefore it appears that if Boris Johnson wins a majority this could be good news for sterling exchange rates, as Boris may get his deal through by the end of January.
However, it’s not all good news for clients buying euros with pounds, the inflation numbers should concern clients as it was only earlier this month when 2 members of the Bank of England voted in favour of cutting interest rates. If inflation continues to fall this could be a sign for further members to vote in favour of cutting interest rates, and history tells us an interest rate cut tends to devalue the currency.
This week the ongoing General election campaign will be the main talking point. Today Boris Johnson, Jeremy Corbyn and Jo Swinson will pitch business leaders at the Confederation of British Industry (CBI) meeting in London. Early reports are suggesting that Boris plans to announce cuts to business rates, Corbyn will announce 320,000 apprenticeships and Swinson will continue to state that the lib Dems will cancel Brexit altogether which the party believe is good news for business. Furthermore, Boris Johnson will take on Jeremy Corbyn in the ITV debate on Tuesday at 8pm. The leader of the opposition will be hoping he performs in the debates as recent polls are suggesting the opposition are 16 points behind in the polls (recent poll by Opinium).
The key data releases to look out for this week for the UK and the EU are the UK inflation report hearing on Tuesday, the ECB monetary policy meeting accounts on Thursday and one of the first speeches by new ECB President Christine Legarde.
Last week head of the Federal Reserve Jerome Powell showed optimism about the future of the US dollar, when he spoke at Capitol Hill. He stated the recent interest rate cuts would protect the economy against the ongoing trade uncertainty between the two largest economies (US & China) and the global slowdown, however Powell failed to provide any further update regarding future policy decisions.
This week the FOMC will release their latest minutes and this should provide a further insight into the future of US interest rates. If the minutes support Powell optimism, this could benefit the US dollar. However, if the minutes hint to further interest rate cuts for 2020 this could weaken the US dollar against its counterparts.
In other news, reports this weekend are suggesting that constructive talks have occurred between the US and China. The two sides discussed each other’s core concerns and further talks will be held in the upcoming week. Last week media reports were suggesting that the talks had grinded to a halt due to Beijing unwillingness to give further concessions on intellectual property rights. The trade war has made headline news for the last 12 months and will continue to do so. If you are trading the US dollar in the near term, I would recommend keeping a close eye on how the negotiations develop.
The Australian economy has had a torrid time of late and last week was no different. Australian unemployment data disappointed as unemployment rose to 5.3% to 5.2% as 19,000 jobs were lost. In addition, The Reserve Bank of Australia have made it clear they will wait and see how the economy performs in upcoming weeks and months before making further decisions in regards to interest rates, however market commentators are suggesting that another cut could materialise as early as February 2020. The latest minutes released Tuesday morning may provide a further insight and will be important for clients that are trading Australian dollars in the months to come.
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