Pound breaches 1.4000 mark, briefly
Expectations of solid growth and a positive outlook towards Brexit negotiations bolstered Sterling confidence throughout yesterday. As the Dollar faded, the Pound initially strengthened to highs above 1.3950, a new fresh 19-month high. The Euro dropped below a significant support level close to 1.1365.
Sterling sentiment remained positive despite EU Brexit draft directives rejecting the prospect of the UK having “sector-by-sector” access to the single market. Further, reports yesterday suggested that the UK had agreed on a Norway-style transition period. Similarly, concerns that speculative long Sterling positions were at the highest level for over three years failed to discourage buying with Sterling posting post-referendum highs close to 1.4000 late in New York trading. The Euro also declined to five-week lows past 1.1400 as the Pound gained ground on its peers. Sterling held firm on market open this morning, although psychological resistance at 1.4000 against the Dollar holds for now.
The Chicago Fed National Activity index showed a small increase to 0.27 despite being below expectations with the three-month average little changed at 0.42. Economic developments for the Dollar yesterday had little effect on trading, especially with the government shutdown.
US Congress agreed yesterday on a temporary spending bill, continuing the funding of the government until February 8th. There were reports suggesting the Senate members were near to a deal late in the European session but this was ratified, leading to the temporary agreement. Cable again tested the 1.4000 mark. The financial services company Moody’s says this US shutdown is turning into more of a danger to the economy than a rating.
Despite the IMF raising its forecasts for the global economy to 3.9%, the US received a knock for future strength as there was a feeling of diversification away from the Dollar. The recent rise in economies outside of the US would have contributed to the uptick in global growth to reach its strongest level since 2011.
In its latest monthly report, the Bundesbank remained optimistic surrounding the outlook with comments that the economy is continuing to expand at a very fast pace while conditions for consumers and businesses are excellent.
Data To Watch:
09:30 GBP Public Sector Net Borrowing (Dec)
10:00 EUR ZEW Survey – Current Situation (Jan)
10:00 EUR ZEW Survey – Economic Sentiment (Jan)
15:00 EUR Consumer Confidence (Jan)