Global Themes

  • Where is next for Sterling?
  • Jobs data could test $1.43
  • Euro loses steam


Where is next for Sterling?

The moves seen in GBP/USD (cable) so far this year are actually historic. Six consecutively weekly gains is a feat last seen over 5 years ago in Q3 of 2012. Furthermore, a 6% rise in January was a monthly gain not seen in over a decade, so Sterling bulls have started the year with intent. Key resistance levels have been broken in GBP/USD with market participants seemingly comfortable with levels around $1.40, although technical indicators do suggest the rate has risen too far too quickly.

Even when we saw the worrying Brexit scenarios report released on Tuesday this week, this was not enough to force the rate below $1.40. So the question is: has $1.40 switched from being a psychological resistance to a support level? If we see a break above $1.4344 (2018 high) this could cause another acceleration higher with there being no clear resistance levels above to halt the run. However, GBP/EUR seems to be telling a different story to cable. Although GBP/USD rallied over 6% in January, GBP/EUR has only managed a measly 2.7% rise. Traders and other market participants could view this GBP/EUR pair as a much truer reflection of the Brexit challenges to come.

  • Therefore the lack of upward drive in GBP/EUR could be an important lesson for the cable bulls as this pair seems to maintain a constant vigilance against the uncertainty surrounding Brexit. With UK Prime Minister Theresa May on her way back from China, and politics is creeping back into currency markets, will this change the picture? GBP/EUR could be the rate to watch for signals - a clean break above the €1.15 handle could be the confirmation Sterling traders need to suggest that the UK economic outlook is recovering.


Jobs data could test $1.43

Today at 1:30pm will see the release of US jobs data, with the monthly non-farm payrolls report for January followed by the official unemployment rate. Payrolls growth in December was disappointing at 148k, falling short of consensus forecasts of 190k. For January the US is expected to have added 180k jobs and unemployment is expected to be unchanged at 4.1%.

The US dollar had a strong start to the week on Monday, appreciating and therefore pushing down towards $1.4024 against Sterling; however the dollar has weakened as the week has gone on, pushing the same rate back up towards $1.43. In January the dollar fell about 0.5% after the non-farm jobs data, so if the data falls short again today GBP/USD may have another run at testing and breaking the $1.43 – it is almost certain that a large amount of market orders are clustered around this level.

  • Yesterday saw the US ISM manufacturing data released. January saw a pickup in manufacturing with the output coming in above expectation at 59.1 from the consensus forecast of 58.8. Despite the positive data, it did little to slow the dollar's losses yesterday.


Euro pushes towards multi-year highs

The EUR/USD rate is back at the $1.25 level and the next couple of days could be critical to see if the Euro will be able to break higher to fresh new multi-year highs of above $1.2536. It is only the third time since November 2014 the pair has been above $1.25, and two of those three occasions, or rallies rather, took place just last month – so this is an indication of just how important current trading levels are.

If today’s US non-farm payrolls data disappoints we could see the Euro run above this point of resistance and therefore keep Sterling from building further strength against the single currency.

  • Separately, Germany continues to move slowly towards forming a new government, four months after the election. Angela Merkel’s Christian Democratic Union (CDU) and the Social Democrat Party (SDP) have set a deadline for this weekend to formalise the coalition talks and if it is settled, the Euro could gain a boost. The Euro has been largely resistant to the political upheaval in its largest state though, and even if the talks do drag on to next week, the focus on the US dollar currently could mean the impact is minimal.

*The rates displayed by our free currency converter are neither "buy" nor "sell" rates, but interbank rates, the wholesale exchange rates between banks. Interbank rates don’t include the spreads, handling fees, and other charges that may be assessed by foreign exchange providers. Please note that, as such, these rates are provided for indicative purposes only. Prior to booking a transaction, Western Union Business Solutions will advise you of the actual rate then available for a particular currency transaction.

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