Currency Market Analysis

Global Themes

GBP/USD falls to 3-week low
- Slowest UK GDP growth in six years
- Carney speech at 1pm
- Dollar rises towards 2-month highs
- NZD to weaken overnight?

GBP

Slowest UK GDP growth in six years
Sterling floats near 3-week lows against the US Dollar this morning, after yesterday’s data revealed UK GDP growth slowed in the final quarter of 2018. Brexit uncertainty is clearly taking its toll on the UK economy, and the British Pound is weakening as a result.

Despite the pound being driven predominantly by Brexit-related news, the recent influx of lacklustre economic data from the UK is leaving investors wary. In Q4 last year, the UK economy grew by just 0.2% q/q, a lot slower than 0.6% recorded for Q3. Meanwhile, headline annual GDP came in at 1.3%, the slowest pace since 2012. Following yesterday’s dismal data, GBP/USD is extending its decline towards $1.28, down over 2% since the start of the month. GBP/EUR continues to flirt with the €1.14 handle, lacking any directional conviction ahead of key Brexit updates.

Prime Minister Theresa May is expected to address Parliament today and tell lawmakers to hold their nerve over Brexit. Ms May hopes that at this crucial stage the European Union (EU) will reopen the withdrawal agreement and make legally binding changes to the Irish backstop. However, the EU has confirmed numerous times that this cannot happen. The deadlock continues and Sterling remains vulnerable. 

Carney Speech

Carney speech at 1pm
Bank of England (BOE) Governor Mark Carney is scheduled to speak at 1pm today, which could rattle Sterling too.

After a dovish BOE meeting last week, investors will be listening for further information on the UK economy. Both growth and inflation forecasts were downgraded significantly and any reiterating comments from Governor Carney today could weaken Sterling further.

USD

Dollar rises towards 2-month highs
In a data-light calendar day today, moves in the currency market remain hinged on technical trading and political developments. Investors appear to be buying the safe-haven, high yielding dollar whist awaiting news on US-China trade talks.

There are growing hopes that trade talks will progress enough this week to avoid the US increasing tariffs on China, but with the deadline of March 01 fast approaching, risk averse sentiment remains prevalent. However, sentiment has lifted somewhat since it looks like the US government will avoid another partial shutdown. Republicans and Democrats appear to have reached a deal on border security funding, but it will need signing off by US President Donald Trump.

The US Dollar index, which tracks the dollar’s strength against a basket of currencies, climbed for an eighth consecutive day yesterday. As a result, EUR/USD fell to 13-week lows towards $1.12. Having closed below the 200-week moving average last week, the downside bias may pick up steam and drag this currency pair to fresh lows beyond $1.12 before the week is up.

NZD

NZD to weaken overnight?
The Reserve Bank of New Zealand (RBNZ) holds its monetary policy meeting in the early hours of tomorrow morning and is expected to keep interest rates at 1.75%. The RBNZ could mirror a more dovish tone alike other central banks of late, which may cause the New Zealand dollar to depreciate.

Despite Brexit uncertainty, GBP has rallied higher against NZD this month and could build on these gains should the RBNZ lower growth and inflation forecasts. The key NZ$1.90 level appears to be holding for now with the next resistance seen at NZ$1.92 to the upside.

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