Global Themes

Prepare for a potentially volatile day
- EUR/USD wrestles with key $1.15 threshold
- GBP/USD consolidating between $1.27-$1.28
- GBP/EUR struggles below €1.11

Our team is ready to help you navigate through the ongoing politico-economic situation. Call us now to discuss a risk management strategy: 0800 096 1225 or view our updated Brexit Scenario Guide


EUR/USD wrestles with key $1.15 threshold
EUR/USD looks poised for its biggest weekly gain since August 2018; a close above $1.15 at the end of today could prove technically pivotal for next week’s trend.

A mixed tone by Federal Reserve (Fed) speakers including Chair Jerome Powell yesterday helped soften the selling bias that’s plagued the US Dollar this week. EUR/USD pulled back from multi-month highs to re-test the $1.15 support area, but still, if this level flips from what was a resistance to a support, then further upside momentum may develop. This morning the pair is already edging higher.

Mr Powell stated that the principle concern is global growth and that recession fears have been unnecessarily magnified. Most economic data releases have been strong from the US recently, but today’s inflation release at 13:30pm will be heavily scrutinised. A swing in sentiment may ensue if it misses the 1.9% forecast for December, down from 2.2% previously y/y.

Arguably more important as the days go on, is the US government shutdown, as approximately 800,000 workers continue in financial limbo (source: Reuters). Fed member James Bullard has warned it could affect the next US jobs report, again putting downward pressure on the dollar.


GBP/USD consolidating between $1.27-$1.28
A busy end to another difficult week for Sterling awaits, with a UK GDP estimate, manufacturing and industrial output all to be released at 9:30am this morning. Any market reactions may be short-lived though as traders remain focused on next week’s crucial Brexit deal vote.

Brexit-related news flow and conflicting Fed comments throughout the week has caused the ebb and flow of GBP/USD between $1.27 and $1.28. The currency pair is on track for a fourth straight week of gains though should it close above $1.2727 today. Since the vote to leave the European Union (EU) back in 2016, Sterling trades 15% lower against the dollar and circa 10% lower against most other major currencies. Investors steer clear of uncertainty and it is the subsequent volatility that is amplified after Brexit-related headlines that clearly highlights how susceptible Sterling is.

There has been a clear correlation between Sterling weakening when the probability of a no-deal scenario increases, suggesting Sterling could tumble a lot lower if this result arises. Businesses should plan for such an eventuality as unlikely, unfavourable or favourable as it might be, it is expected to send Sterling a lot lower. It would be irresponsible to forecast where Sterling currency pairs will be trading by the end of the year as no-one knows how Brexit will play out. The UK government has lost two procedural votes this week and there is a growing chance we could see Article 50 extended.


GBP/EUR struggles below €1.11
In the absence of any top-tier Eurozone data today, this currency pair will be driven by Brexit-related headlines, UK economic data and how EUR/USD trades today. GBP/EUR could clock its worst weekly performance since mid-November, but €1.10 is offering significant support of late.

The European Central Bank (ECB) minutes of its December meeting were released yesterday and investors examined for clues on monetary policy guidance for this year. It appears the ECB could assess the risks to economic activity as skewed to the downside and recent economic data suggests this is wise. Despite these risks, the Euro has been one of the top performers of the major currencies this week, benefiting from the flows out of the US Dollar and into the common currency amid risk-on trading thanks to US-China trade talk optimism.

GBP/EUR has consequently dipped below €1.11 and if it closes the week out below this level, it will be the third occurrence since Q3 2017. In terms of directional impetus though, we could witness a consolidation phase ahead of next week’s critical vote before any substantial volatility arises.

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.