GBP rallies 5% on a 'deal' - China data disappoints
USD: EUR/USD crept outside of its recent range, rising above 1.1050, settling around 1.1120 for the first time in 2 weeks. The USD retreated in a risk-on atmosphere in FX markets. Markets continue to worry about the escalation of tensions on the Tuurkish border (although Turkey has announced a pause in operations, allowing Kurds to retreat) alongside continuing Sino-US trade tensions.
GBP Overview:
GBP had a stellar week, up 5% against the major currency pairs – GBP/EUR at 1.1550 (but has been higher) and GBP/USD at 1.2850 (but has been higher). Saturday (19th) morning is highlighted by World Cup Rugby, but disturbed by the UK parliament convening, and PM Johnson having to scrabble around for votes to back his plan. In the event that parliament do not back his deal, he must request an extension from the EU – something he wont be keen to do (recall the “rather be dead in a ditch” comment?). Despite this, markets have rallied around GBP in the short-term.
GBP/EUR on 23rd June 2016 (day before the Brexit announcement) was as high as 1.3100. Since then, GBP/EUR has traded between 1.2000 and 1.0650.
GBP/USD on 23rd June 2016 was as high as 1.4850, having averaged around 1.4500 through 2016. During the interim, GBP/USD has traded between 1.4200 and 1.2250.
Over 3 years of uncertainty, alongside a slowing global economy, has hurt UK growth prospects, and many commentators are predicting economic pain in a post-Brexit world.
EUR: A Reuters poll shows that the ECB (Central Bank) is expected to cut the deposit rate to -0.6% in Q1 2020. The poll also showed economists expect the asset-purchase programme to end end 2-5 years.
Rabobank poll: Showed a 3month forecast level in EUR/USD at 1.0700 (the 1yr forecast is 1.1200)
China:
Poor growth figures from China showed GDP growth at a 30-year low of 6.0% in the 3rd quarter of 2019. These figures are likely to take annualised growth to the bottom of the 6%-7% target range. Comments from ANZ bank below highlight more fragility in the Chinese economy:
“With China’s GDP having expanded 6.2% on a year-to-date basis in Q3, we believe it is likely that the economy will maintain full-year growth at 6.0% in 2019 unless GDP growth falls below 5.5% y/y (or 1.0% q/q) in Q4.
In nominal terms, China’s GDP growth has retreated to 7.6% y/y in Q3 from 8.3% in Q2, signalling that the economy is slowing at a quicker pace than what the headline figure indicates.
We also notice that China’s industrial production (IP) data tend to rise at quarter-ends in 2019. For instance, the headline growth rates rose 1.4ppt in September, and 1.3ppt in June.”
JPY: BOJ deputy Givernor Amamiya took a cautious approach to growth prospects in Japan, saying that the global slowdown is adding downside risks to growth.