Global Themes

  • Euro stalls awaiting ECB
  • Dollar traders hesitant ahead of Davos summit
  • BOJ downplays Yen strength

GBP

GBP/USD pops and drops

Sterling clocked another strong day yesterday and printed yet another post-referendum high as GBP/USD peeped over the psychologically important $1.40 handle overnight, before quickly tailing off. GBP/EUR successfully leapt the €1.14 hurdle but has once again slipped below this level this morning. As anticipated, the pound is likely to confront fresh resistance at these levels as traders take profit, which can be associated with the sharp correction back towards $1.3950 against the dollar this morning. Unless tomorrow’s labor market data shows a healthy increase in wage growth, Sterling risks sliding back further as these recent unprecedented gains appear unjustified and speculative.
However, reports are surfacing that Prime Minister Theresa May is exploring a “Norway -style” Brexit deal with the European Union (EU). In fact, Belgium MEP Philippe Lamberts stated the UK has already “agreed in principle” to a transition period whereby all EU rules are obeyed but with no power to influence them (source: Independent). As a result, the UK will have full access to the single market, which will benefit the economy and thus the pound, but there are still no guarantees that a deal will even be reached.

  • UK public sector net borrowing data for December will be released at 9:30 this morning. It is forecast to have fallen to $4.200Bn down from November’s £8.118Bn.

ECB

Euro stalls awaiting ECB

The Euro slipped yesterday ahead of the European Central Bank’s (ECB) meeting on Thursday. Against Sterling, the Euro fell 0.6%, the pair had over a full cent trading range over the course of the day and closed clutching hold of the €1.14 handle. Against the US Dollar, the Euro had a much more forgiving day, after almost dropping below the $1.22 level, the Euro managed to recover and close the day around the mid $1.22.

Greece progress on reforms has been welcomed by Eurozone finance ministers, but the EU will only disburse the next tranche of loans once all agreed actions are complete. For a new loan to be paid out, Greece must first complete 110 “prior actions” and so far the Greeks have implemented 92 of the agreed actions. Athens may have to wait until February for the money from the Eurozone bailout fund ESM, the ministers said they would start technical work on more debt relief for Greece that could be granted after the end of the bailout in August (source: Reuters).

  • A study published by Germany's ZEW institute on Monday showed the ECB is forced to buy more debt from countries such as Spain and Italy due to a shortage of bonds from less-indebted nations like Germany. Today will see the release of the ZEW survey on economic sentiment at 10:00am, which has shown consistent improvement over the months. With the day being light on top tier data elsewhere, this could give the Euro a chance to recover some of yesterday’s losses.

USD

Dollar traders hesitant ahead of Davos summit

Yesterday saw US Congress approve short-term funding for the Government ending the 3-day shutdown. Though markets seemed to disregard the political situation in America, the US Dollar lacks clear direction with gains against the Japanese Yen but also losing ground against Sterling.

  • Dollar traders seem to be maintaining a wait and see attitude towards the buck, waiting to see what sort of speech US President will deliver on Friday at the Davos Summit. With the lack of market participation in the dollar, rates will be dictated by sentiment.

Bank Of Japan

BOJ downplays Yen strength

The Bank of Japan (BOJ) held interest rates overnight quelling any speculation that the central bank was going to look at tightening policy anytime soon. Despite the dovish tone from the bank, the Yen weakened ever so slightly against the dollar and pound.

  • The limited moves suggest that traders are taking a view that the bank will eventually adjust its monetary policy. USD/JPY is hovering around the ¥111 handle this morning while GBP/JPY struggles to break ¥155.





Western Union Business Solutions has based the opinions expressed herein on information generally available to the public. Western Union Business Solutions makes no warranty concerning the accuracy of this information and specifically disclaims any liability whatsoever for any loss arising from trading decisions based on the opinions expressed and information contained herein. Such information and opinions are for general information only and are not intended to present advice with respect to matters reviewed and commented upon.

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