January 17, 2020 — 4 min read
The Pound continued its gains against the Dollar yesterday for the third consecutive session and climbed to fresh weekly highs, around 1.31. The upward movement seemed stunted by growing concerns that the UK will crash out of the European Union at the end of this year. Even BoE rate cut speculations that have been appearing throughout the week did little to hinder the pair's positive movement. The incoming softer UK macro data has strengthened the case for a 25bps BoE rate cut at the upcoming monetary policy meeting on 30 January. However, the market already seems to have discounted the move and the same was evident from GBP's relative outperformance.
US data released on Thursday showed that retail sales have achieved a growth of 0.3%, matching the consensus estimates and the previous month's growth. Meanwhile, sales excluding automobiles (core retail sales) and the closely watched Retail Sales Control Group both surpassed estimates rising 0.7% and 0.5% respectively. Adding to this, the Philly Fed Manufacturing Index rose to 17 points for January as compared to the previous month's reading of 0.3 and much better than a rebound to 3.8 points anticipated. Several Fed officials have noted how critical a buoyant consumer is to maintain economic activity in the face of geopolitical headwinds from at home and abroad amid a manufacturing slowdown. Therefore, weak consumer-related data may push USD lower if the result is a rise in Fed easing estimates. There is also another indicator which may give insight on the consumer’s confidence: housing data.
Moving ahead, today’s release of the UK monthly retail sales data for December will now influence the Pound and may produce some short-term movements.
Similarly, the Pound has traded with a firmer tone against the Euro in the second half of the week, after markets showed they are unwilling to bet a Bank of England interest rate cut at the end of the month is a certainty. However, the Pound's resilience is clearly on display and markets are yet to fully buy into the notion that now is the time to cut interest rates in the UK and are instead opting to wait for data out next week that could yet show the economy has experienced a post-election bounce. The GBP/EUR exchange rate has climbed back above 1.17, despite being as low as 1.1630 earlier in the week.
Phil Hogan, the European Commissioner for Trade, told a conference in Washington that President Donald Trump is obsessed with America's trade deficit with the old continent. Further to this, he criticized the US-China trade deal that includes Chinese commitments to buying US goods – a potential violation of international commerce rules. Hogan is in the American capital to discuss Trump's threat to slap tariffs on French goods following France's "tech tax," which is imposed mostly on US companies.
These trade tensions have contributed to paring EUR/USD gains, triggered by several positive developments. The European Central Bank's meeting minutes were cautiously optimistic on Thursday. The bank sees indications that core inflation is rising and that the manufacturing slump is contained.
Euro/dollar has also struggled to recover from upbeat US Retail Sales which beat expectations on all accounts – including an increase of 0.5% in the all-important Control Group. The pair is currently trading below 1.1150.
The figures are based on the live mid-market rate, correct as of 09:00 GMT on 17/01/2020, and are provided for indicative purposes only. Live mid-market rates are not available to consumers and are for informational purposes only. The rates we quote for money transfer can be selected via the page on our website ‘Live Money Transfer rates’.
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