Fixated on rates
A spokesperson for Number 10 reiterated that there will be no regulatory alignment with the EU post Brexit, adding that the UK is seeking a Canada-style free-trade agreement. Speculation grew that Ireland would not sign up to any trade deal without a UK equivalence clause regarding the way goods are produced in both the UK and EU. The Pound lost ground early on with lows around 1.2965 against the Dollar and only a tentative recovery late on which fizzled out near 1.3000. Sterling registered marginal gains on the day to trade around 1.1723. A slim improvement in global economic optimism provided some support to the Pound, although markets continued to price in Bank of England interest rate cut next week at 70% probability.
This morning sees the latest UK labour market data and a poor turnout for employment and wages would only reinforce expectations of a rate cut. Sterling is little changed at market open and traded fractionally above 1.3000 on the Dollar and 1.1727 on the Euro.
Trading activity was inevitably curbed by the US Martin Luther King holiday and there were no major fundamental developments during the day. Recent US data releases continued to offer an element of dollar support, although a lack of conviction surrounding the other majors had a larger impact in supporting the US currency.
Reports that President Trump and French President Macron had agreed on a truce on the trade issue meant a move back to near 1.1100 for EURUSD and little net change for the pair this morning.
In its monthly report, the German Bundesbank stated there were indications that the manufacturing sector could stabilise at the start of this year, especially as exports have strengthened. Business confidence had improved and there is no sign of the construction boom ending. After 0.6% GDP growth for 2019, the weakest reading for 6 years, the central bank was more optimistic over the outlook for this year, but the Euro was unable to make any headway.
The Euro however, did stage a limited recovery after the European close following reports President Trump and French President Macron had agreed a trade truce with a move back to near 1.1100 and little change for the pair as we begin Tuesday trading session.
Data to watch
All Day – All – WEF Annual Meetings
09:30 – GBP – Average Earnings Index