It is the tale of the Central Banks momentarily. Coronavirus taking centre stage in terms of risk on a Geopolitical basis. Chinese officials playing down the impact to financial markets the best they can. Meanwhile we see Christine Lagarde from the ECB speak at 1400hrs, amidst a period where the EUR is trading against the USD at a 4-month low. Positive economic sounds may be required to help the languishing single currency.
Here in the UK the Pound has been range trading but with a mild weak bias. GBPUSD pivots around the 1.2900 level against the USD, and 1.18 against the EUR. The outgoing Bank of England Governor Mark Carney speaks today against a backdrop of a slightly better data background. This morning UK GDP came in above expectations, and whilst not a blisteringly high post; this does augur well. Month on Month GDP was 0.3%, and more prescient was the annualized number that jumped to 1.1% (against market median expectations of 0.8%).
The mood music around UK manufacturing business at the beginning of 2020 certainly appears more positive. Whilst this piece of data may seem relatively benign, we could expect that the Q1 2020 number will be assisted by this better than expected showing in Q4 2019. Much better news potentially for the UK overall as a net importer, and a preference for GBP strength in trade negotiations.
The US Dollar has been the main beneficiary in currency markets since Coronavirus became an issue. A flight to quality has been benefitting the Greenback, and the DXY trade weighted index is pushing ever closer to the 99.00 level which will represent a 30-month high for the USD against a basket of currencies. Aided clearly by new record highs being posted in US Equity markets. The stand-out performer having been the S&P 500 which has more than tripled in value in the last 8 years. In a US election year there will be no reason why current President Trump would wish for this to abate.
The Federal Reserve’s Powell also speaks today to complete the key set of Central Banks, and no doubt he will be keen to reiterate the strong employment numbers seen on Friday in the form of the non-farm payrolls. The 225,000 posting coming alongside an equally strong ADP employment number earlier in the week. Fading concerns over a US interest rate cut, has helped the USD globally on an interest rate yield basis. Any further comments from Powell today confirming this could well see the USD DXY through 99.00.
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