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Currency Market Analysis

Jul 16, 2019 | Currency Market Analysis

Global Themes

Sterling/Dollar falls back below $1.25


Data to test Sterling

Sterling slipped to near 6-month lows again yesterday ahead of a busy week of economic data and Brexit concerns. This morning GBP/EUR oscillates around the €1.11 mark while GBP/USD has slipped below $1.25. The pound has come under pressure due to a run of poor economic data and investors being nervous about the prospect of Eurosceptic, Boris Johnson winning the Conservative Party leadership contest. Boris Johnson is seen as more likely to lead the UK to a no deal Brexit and his appointment as the new Prime Minister could drive Sterling lower.

Today, the pound will face another important test with unemployment and average earnings data being released at 9:30am. Unemployment is expected to remain flat at 3.8%, average earnings excluding bonuses is forecasted to rise 0.1% from 3.4% to 3.5%. A negative print below these numbers could trigger a further sell off in the pound.

The remainder of the week will continue to test Sterling as inflation and retail sales data is released. However, if todays data and the remainder of the week is positive, this could be a welcome break for Sterling and see it move away from the 6-month lows.


US Retail Sales to match market sentiment?

This afternoon, US Retail Sales will be released at 1:30pm. It is forecast to show a decrease to 0.1% from 0.5% the previous month. The dollar has been volatile over the past few weeks due to market sentiment regarding the looming interest rate cut by the Federal Reserve (Fed) at its next meeting.

The huge overperformance seen earlier this month with the US non-farm payroll number saw the dollar rally, potentially reducing the likelihood of the Fed cutting interest rates by 50 basis points. Expectation of a 25 basis point cut at the next Fed meeting now stands at 70% (Source; CME). Economic data appears to be driving market sentiment so we could expect increased price action around the release of the retail sales data later today.


Sentiment test for Euro

This morning, both German and Eurozone ZEW economic data will be released at 10:00am. German data is forecast to weaken again which could add to the woes surrounding the EU as the Eurozone economy continues to struggle. The European Central Bank has previously indicated that stimulus may be required before the end of the year.

EUR/USD opens today in the mid $1.12 region. The economic concerns in the EU has resulted in EUR/USD falling close to 3% lower from the year high of $1.1570 last seen in January. Tomorrow, the Euro will face another key test with Inflation data being released. 

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