Pound's Resilience is Expected to be Tested this Week

Xe Corporate UK

January 13, 20204 min read

The Pound has started the week lower against the Euro and other major currencies, however the latest technical studies suggest the GBP/EUR rate is holding with a healthy level of support on the charts. Any weakness should therefore ultimately be short-lived. The Pound’s resilience is expected to be tested this week by several key pieces of economic data.  

The GBP/EUR pair ended last week with a gain, which was somewhat thwarted mid-week following comments from Bank of England (BoE) Governor Mark Carney. Carney said there remained a strong case for lowering interest rates in light of ongoing economic weakness in the UK, and market expectations for an interest rate cut to be delivered by the Bank in early 2020 have increased. The threat to the Pound of another interest rate cut was reinforced over the weekend by Bank of England policy maker Gertjan Vlieghe who said  he would vote for a rate cut if there was no sign of a rebound in activity after the election.

Wednesday and Friday will also see inflation and retail sales data released for the UK.Market expectations are looking for inflation to have remained at 1.5% in December, below the 2% target, and for the more important core inflation number to have remained at 1.7%. Retail sales, an important indicator of consumer health, are expected to have risen 0.8% for December after falling -0.6% in November.

GBP/USD

Similarly the GBP/USD pair has also been affected by the dovish comments made by BOE’s Vlieghe, dipping below 1.30 this morning. The fall in the pair has taken effect, despite weak job data coming out of the US last week. According to the official release, the US economy added 145K jobs in December as compared to 164K expected and worse than the previous month's downwardly revised reading of 256K (266K reported earlier). On top of this, average hourly earnings also fell short of market expectations and came in to show a modest 0.1% during the reported month. The yearly wage growth rate eased to 2.9% from 3.1% previous and added to the disappointment, which eventually exerted some downward pressure on USD.  

EUR/USD

EUR/USD is currently trading above 1.11, enjoying the optimism ahead of the China-US phase one deal signing. The dollar is again on the back foot after weak job data from last week.

The market focus now shifts to the potential signing of the phase-one US-China trade deal later this week. Chinese Vice Premier Liu He will be leading a delegation to Washington. He is set to sign Phase One of the trade deal and investors are already looking further forward towards the second phase. Markets are awaiting the details of the accord. Also, a number of important data releases from the US and the Eurozone this week are expected to play a key role in determining the pair's next leg of a directional move.

At the time of writing;

GBPUSD – Trading at 1.30

GBPEUR – Trading below 1.17 at 1.1686

EURUSD – Trading above 1.11 at 1.1125

The figures are based on the live mid-market rate, correct as of 08:30 GMT on 10/01/2020, 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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