Global Themes

More central banks cut growth forecasts
- Choppy Sterling drops and pops
- Flight to safety amid US-China deal delay
- AUD and CAD tumble further


Choppy Sterling drops and pops
The Bank of England’s (BOE) first policy announcement of the year sent Sterling into a spin yesterday after the BOE downgraded its economic growth forecast from 1.7% to 1.2% for 2019, the weakest level since the recession of 2009.

The worrying risk of a no-deal Brexit scenario is still on the table, but the central bank warned that even in the event of an orderly exit from the European Union, the UK will only just avoid a recession this summer. Concerns about the slowing global economy were also acknowledged. The dovish shift in sentiment saw policymakers vote 9-0 in favour of keeping interest rates at 0.75%. Sterling dropped to fresh 2-week lows towards $1.28 against the US Dollar.

However, hopes of a delay to Brexit or at least some progress in negotiations saw Sterling sharply reverse course and pop back above $1.29, scaling towards $1.30. GBP/EUR didn’t fall as hard as GBP/USD, so when the positive rumours hit the market, GBP/EUR catapulted towards €1.15, before pulling back to €1.14 on the day. Investors expect amplified volatility in Sterling due to continuous Brexit-related news flow.


Flight to safety amid US-China deal delay
US President Donald Trump revealed he does not intend to meet Chinese President Xi Jinping before the March 01 trade truce deadline. Mr Trump had threatened to raise tariffs on China if talks hadn’t progressed by this date, which has sparked a fresh wave of uncertainty and anxiety across financial markets.

The news prompted investors to buy into safe-haven assets of which the Japanese Yen has been the clear winner amongst the currencies this morning. The US Dollar, a high yielding safe-haven currency, also held near two-week highs against a basket of currencies. Increasing concerns about slowing global growth continues to spook market participants as the US-China trade war affect ripples across economies worldwide. As well as the BOE, the European Commission cut its forecasts for Eurozone growth this year and next.

In addition, German recession fears are growing as Europe’s largest economy suffered its biggest decline in factory orders since 2012. Data revealed that orders slumped a huge 7% in December 2018 compared to December 2017. The Euro is weakening as a result and EUR/USD is on the brink of closing below its 200-week moving average – a key support level which could give way to further downside if broken.


AUD and CAD tumble further
Oil prices are still sliding,  which continues to weigh on the Canadian Dollar. The Australian Dollar has endured a rough week after a dovish tilt in monetary policy by the Reserve Bank of Australia (RBA), allowing GBP/AUD to climb over 4-cents since Wednesday.

Canada, as an oil exporting nation, often witnesses its Canadian Dollar trade in a positive correlation with oil prices. A barrel of West Texas intermediate has plunged nearly 4-cents this week and GBP/CAD has risen by almost 2% as a result of a weaker dollar. Further losses may be suffered for the CAD today if employment data disappoints at 1:30pm.

The RBA surprised investors this week warning that Australia could see an interest rate cut in an attempt to boost the economy this year. Furthermore, the RBA joined the many other central banks in cutting its growth and inflation forecasts, which has further punished an already damaged Aussie dollar. GBP/AUD is up over 2.5% from the week’s low.

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