GBP special, FX remains cautious with coronavirus in the spotlight
GBP: Decent data through the last 2weeks saw GBP rally vs EUR (1.1800 now) and USD (1.3000 now), and although subsequently has given up some gains, remains higher than 2 weeks ago. This came amidst the biggest re-shuffle of interest rate expectations in 2yrs which saw a decreased chance of interest rates later in 2020. Deutsche Bank have an interesting opinion on this, and note:
GBP currency correlation to UK interest rates has broken down since the 2016 Brexit decision, and GBP reacts to Brexit headlines and politics.
Positioning: This doesn’t hold much water to argue for GBP strength as short positions were covered after the Dec election, and IMM data shows major players already hold long positions in GBP.
Has the currency benefited from foreign investment in UK equities? No, the UKs main index has underperformed MCSI and S&P.
Does the property market hold the key? Housebuilders and developers stock prices shot up after the Dec19 election, but the surcharge in tax for overseas buyers should offset some of the optimism.
Happy to maintain there own ‘short’ position in GBP, Deutsche reiterate their medium-term negative outlook for GBP
Coronavirus: China’s National Health Commission confirm 4,515 cases and 106 deaths, and a case is now reported in Germany. Although the World Health Organisation is confident that the Chinese reaction has reduced the chances of an epidemic, Asian stock markets and currencies were weaker overnight – FX markets are not in panic mode yet, but caution remains. The New Zealand Dollar was dramatically weaker.
Ahead today we have US confidence data and Durable Goods orders.
EUR/USD: has broken lower over the last week, nearing 1.1000, and if the decline continues, may reach the October low of 1.0879.
CAD: Recent strength has left the currency at crucial levels, noted last week, and a failure to break through might indicate a reversal of fortune for the CAD, which was weaker overnight on weaker oil prices. USD/CAD at 1.3200 / EUR/CAD at 1.4540 / GBP/CAD at 1.7170