Global Themes

  •  GBP/USD collapses below critical $1.25
  •  Dollar buoyant as eyes on CPI
  •  Political instability weighs on Euro


GBP/USD collapses below critical $1.25

Sterling’s rebound from 20-month lows yesterday has taken a dramatic U-turn decaying back towards and now below the critical $.25 level. The mounting Brexit anguish is crushing the very vulnerable British Pound. European Union (EU) leaders including German Chancellor Angela Merkel, have ruled out renegotiating the current withdrawal agreement, dashing Prime Minster Theresa May’s hopes. A leadership contest against Ms May has now been triggered by Conservative lawmakers, plunging the UK into more political disarray. As the political uncertainty deepens, the trap door revealing the lower $1.20 territory looks ominous.

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Amongst a myriad of possible scenarios to play out in the Brexit landscape a no-confidence vote against Ms May is one which will likely spark aggressive and unpredictable price action in the pound. GBP/USD is on track for six consecutive weekly declines but still showing no sign of downside fatigue. The Euro is also feeling the brunt of the Brexit angst, which is minimising the negative impact on GBP/EUR, however the currency pair is still flirting with year-to-date lows around €1.10.

  •  A ballot is to be held between 6:00pm and 8:00pm this evening in a room at the House of Commons and an announcement to be made as soon as possible afterwards. Amplified volatility should be expected.


Dollar buoyant as eyes on CPI

The US Dollar gained further positive traction yesterday as core producer prices rose 2.7% y/y in November, faster than the 2.5% forecasts. The US Dollar index, measuring the strength of the dollar against a basket of currencies sprung back above the 97 handle where it sits firmly atop today. EUR/USD has fallen back towards $1.13 as a result, as the currency pair continues to bounce between here and the $1.14 level.

Today, the US consumer price index will be released at 1:30pm. Forecasts for inflation to soften to 2.2% in November from 2.5% in October could cap further dollar gains. However, a surprise uplift is likely to prompt a rethink in investors’ views that underlying inflation is losing momentum and could support an increase in the probability of a US rate rise this month.

  •  A boost in global risk appetite has restricted dollar gains across the board amid US-China trade optimism. It appears that China have agreed to reduce tariffs on cars made from the US to 15% from the current 40% that was imposed in July this year.


Political instability weighs on Euro

Today, European Commission head Jean-Claude Juncker and the Italian PM Giuseppe Conte are expected to meet around 3:00pm to discuss Italy’s revised 2019 budget plan. Mr Conte is reportedly seeking a budget deficit target above 2% hoping to avoid breaching EU disciplinary action. The Euro remains bogged down by political woes, not just by Brexit and the Italian budget crisis, but the protests in France are also being closely watched and weighing on Euro sentiment.

The protests against French President Emmanuel Macron's economic reforms is unnerving investors. Mr Macron has attempted to diffuse the situation by giving concessions to the protestors, scrapping a fuel tax rise that sparked the revolt and promising €100 extra a month for minimum wage earners. The ongoing instability across Europe has already shown signs of impacting negatively on the Eurozone economy, which could

*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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