Sterling declines against Dollar
For the first time since before Christmas, Sterling declined against the Dollar, hitting 1.3210 in the lead up to the market open. There has been very light trading volumes over the festive period and hard Brexit fears are weighing on the Pound. A poll of economists published by the FT showed a consensus view that UK GDP would suffer if the EU reacted harshly to the Prime Minister’s lack of conciliatory tone in negotiations. Also, the market’s risk appetite has increased in line with optimism surrounding the US-China trade relations buoying the Dollar into 2020.
December’s UK manufacturing PMI’s are due for release this morning but are unlikely to generate much in trading volume.
The safe-haven US dollar meanders near five-month lows, as risk-on trades prevail amid US-China trade signing expected next month while year-end closing out of the dollar positions also adds to the weight on the greenback. US President Trump said on the final day of 2019 that the US-China phase one trade deal will be signed on January 15th in Washington.
Moreover, improved US economic outlook, as indicated by the steepening of the US Treasury yield curve, failed to impress the USD buyers and in turn supported the EUR/USD advance.
The Euro has entered 2020 on a positive note. The single currency gained nearly 3% in the fourth quarter of 2019, the biggest single quarter rise since 2017. Even so, the pair closed the year with a 2.2% loss and now currently sits just above the 1.12 figure against its Dollar counterpart.
The ECB is due to conduct a strategic review in the coming months for the first time since 2003, with the Governing Council however, in no rush to further insulate the monetary union. The central bank insists the implementation of structural policies in the Euro area countries needs to be substantially stepped up to boost euro area productivity and growth potential.
Data to watch
09.30 GBP – Final Manufacturing PMI