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Power consolidation at 21 Downing St

Power consolidation at 21 Downing St

GBP

The cabinet reshuffle unexpectedly sent ripples across the markets with Chancellor Sajid Javid’s surprise resignation. The Pound dropped as the news broke, but Sterling soared after interest rate expectations moved towards looser monetary policy. Incoming Chancellor Sunak was seen as Boris’s man and much less likely to oppose substantial infrastructure spending with a sharp increase in government spending likely. Expectations rose for a strong strong spending boost in forthcoming Budget. A more aggressive fiscal stance will reduce the chances of a Bank of England rate cut and rose through the resistance levels. 

The Euro declined to the 1.2050 area, last widely available in September 2016, as only a day before Eurozone interest rate expectations had gone in the opposite direction.

Breaking through the Dollar’s 1.3000 mark triggered another buying surge to peak near 1.3070. Reservations over the forthcoming UK/EU trade talks prevented the Sterling surge becoming a rout.

The Pound holds firm at market open, near 1.3050 against the Dollar and 1.2040 on the Euro with markets anticipating weekend briefings on budget policies.

USD

US jobless claims increased only marginally to 205,000 from 203,000 previously and again came in below consensus forecasts, maintaining confidence in the US outlook. Consumer prices increased 0.1% for January compared with consensus forecasts of a 0.2% increase, although the year-on-year rate increased to 2.5% from 2.3% and the highest rate since November 2018. Core prices increased by 0.2%, in line with market expectations and the annual rate held at 2.3%. The increase in headline inflation dampened expectations that the Federal Reserve could cut interest rates again. Futures markets indicated that the chances of a Fed interest rate cut at March’s meeting had declined further to 10%. 

The US currency held a strong tone while the Euro dipped to 33-month lows against the Dollar near 1.0830 and failed to secure a significant recovery. 

 

 

EUR

The EU Commission made no changes to its 2020 and 2021 GDP growth forecasts in the updated outlook published on Thursday, but overall confidence in the outlook remained weak, especially with expectations that the Chinese coronavirus would lead to further damage for the crucial German export sector and undermine the region. 

ECB Chief Economist Lane stated that the low interest rate phase is temporary, but German yields overall edged lower which further sapped support. There was also further speculation that the Euro would be used as a global funding currency. As of writing the the Euro trades at 1.0834 against the Dollar. 

 

 

Data to watch

07:00 – EUR – German Prelim GDP

13:30 – USD – Core Retail Sales 

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