Global Themes

  • The BOE’s ‘Super Thursday’ awaits
  • Brexit and political woes rock the pound
  • Euro looks flat, Draghi in focus
  • A quiet week for the US Dollar?

GBP

GBP
The BOE’s ‘Super Thursday’ awaits

A big week ahead looms over Sterling traders this week, as market participants prepare for a swarm of events including top tier economic data and Brexit related updates. Arguably the most important day is ‘Super Thursday’, when the Bank of England (BOE) meets for the first time this year to announce its interest rate decision, release its updated inflation report and Governor Mark Carney will then hold a press conference afterwards. The BOE’s Monetary Policy Committee is expected to vote unanimously to keep interest rates unchanged at 0.5%, but any signs of an upcoming rate hike could boost the pound higher.

Mr Carney’s tone has been somewhat hawkish lately, suggesting a hard Brexit is looking less and less likely and stating the central bank can now turn its focus back to bringing down inflation (source: Reuters). A hawkish tone from the BOE last September triggered a Sterling rally, which climbed from $1.29 to as high as $1.3656 against the US Dollar over the course of that month. The pair rose as high as $1.4344 last week but is perched precariously around the $1.41 handle this morning having endured its biggest daily fall since November on Friday.

  • This morning, UK services PMI for January will be released at 9:30am. Expectations of an uplift to 54.3 from the previous month’s 54.2 print could support the pound and halt its current downtrend experienced since Friday.


Brexit and political woes rock the pound 

European Union chief negotiator Michel Barnier is in the UK this morning to meet with Brexit Secretary David Davis and Prime Minister Theresa May before exit talks begin again in Brussels on Tuesday. Progress appeared to have been made after the last round of talks, which was a big part of the recent rally the pound has enjoyed, but the split between those wanting a ‘hard’ versus ‘soft’ Brexit has created a lot of uncertainty again. The issues around the Irish border, the transition period and the rights of EU citizens in the transition period have all proved to be sticking points.

One of the big issues for the Prime Minister has been the pressure from those who favour a harder Brexit wanting her to state categorically that the UK is not looking to be part of the customs union or the single market - something institutions like the CBI have been pushing for. It seems every Sunday, stories breaking of plots to replace Mrs May are revealed, with the latest being that a group of hard-line Brexiteers - Boris Johnson, Michael Gove and Jacob Rees-Mogg - are being lined up to replace the PM and the Chancellor Phillip Hammond.

 Although this seems unlikely, it is damaging to the UK’s negotiating position and negative for the pound. It is ironic that a harder right Conservative UK Government would be seen as anti-business, but given the nature of the CBI’s and the City’s views on Brexit, any scenario like this could be damaging to Sterling.

EURO

EURO
Euro looks flat, Draghi in focus 

EUR/USD opened the week in the mid $1.24 handle as the Christian Democratic Union (CDU) and the Social Democrat Party (SDP) failed to reach a collation agreement over the weekend; although, there are no suggestions at the moment that talks have broken down and there is still hope that a Government will be formed in the early part of this week.

European Central Bank (ECB) President Mario Draghi is speaking before the European Parliament at 4:00pm today and will no doubt give another robust defence of ECB policy, particularly around easing measures, whilst Dr Jens Weidmann - President of the German central bank - is speaking both on Tuesday and Thursday.

  •  Eurozone services PMI data for January is released this morning, with no change forecasted from the December number.

USD

USD
A quiet week for the US Dollar?

The US Dollar was the top performer last Friday following the release of labour market data. After an abysmal start to the year, the upside realised in US wages in Friday’s reports leant a supportive hand to the dollar, and stalling the EUR/USD rally towards $1.25. The pair currently trades closer to the $1.24 handle but a break lower towards $1.23 could accelerate a downside move towards $1.2165 - a mid-January low.

  • This week is relatively quiet from the US, with just ISM non-manufacturing PMI for January due at 3:00pm today. However, the ongoing situation between President Donald Trump and the FBI investigation will be closely watched throughout the week.



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.

Deliver the Daily Currency Market Analysis to my Inbox

Published five days a week, this newsletter provides day-to-day trends and activities affecting the market in easy-to-understand snapshots.