The USD lost ground last week & UK data begs the question is the glass half full?
The US headlines regarding tariffs, tariff threats and general trade-threatening headlines are yet to come to reality, leaving currency markets treading water and volatile.
GBP: GBP/USD had a 5-day losing streak but has recovered. Although this was mainly due to weak US data last week, GBP/$ is above 1.2450. This is despite CBI data this morning showing that British businesses are bracing themselves for a significant fall in trading over the next few months. It also reiterated ‘widespread pessimism’ across the private sector.
Friday’s data showed price pressures, alongside falling employment could result in ‘stagflation’ coming to the UK in the medium-term. All of this is likely to see the Bank of England cut rates by 0.25% on 6th February to 4.5%.
Despite this, GBP/EUR remains elevated around 1.1900 due to selling of the €€. Wednesday’s speech from Governor Bailey will be a market mover this week.
USA: Services data pushed the USD down last week, allowing EUR/$ to briefly trade around 1.0500. In addition, the market unwound the ‘Trump trade’ following market expectations of widespread tariffs being implemented – in fact Trump’s interview with Fox News last week that he can make a deal with Xi in relation to trade issues was one of the drivers to dent USD’s bullish momentum.
1st Feb is being touted as the deadline for tariff announcement on Canada and Mexico – all eyes will be on that date, and Wednesday evening’s US Fed meeting and press conference. Although the Fed is very unlikely to cut rates (following 3 consecutive rate cuts), the press conference is important, and the market is looking for a 0.25% rate cut in June.
EURO: Tuesday sees ECB President Lagarde speaking, and Friday all eyes will be on German GDP data. The EURO is struggling against many headwinds, against the backdrop of having to manage a potential regional trade ‘fight’ with the US. The ECB will likely continue on its course of interest rate cuts this year, in a bid to stimulate a faltering regional economy.
CAD: Interest rates announcement on Wednesday afternoon will be closely watched, along with the press conference – the central bank is expected to cut rates from 3.25% to 3% and this is likely to further hurt the CAD currency which has had an awful 12months.
AUD: Wednesday’s broad range of inflation data will be closely watched this week.