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Pound falters despite UK household optimism hitting eleven-year high

  • Eleven-year high in household optimism fails to drive pound higher
  • Doubts over effectiveness of ECB monetary loosening dent euro
  • US bank holiday limits support for US dollar

 
Weaker UK wage growth set to weigh on pound
 
An unexpectedly sharp bounce in the latest IHS Markit household finance index was not enough to prevent the pound from shedding ground yesterday.
 
Although household optimism rose to an eleven-year high, GBP exchange rates remained on the back foot, in part thanks to lingering anxiety over the upcoming UK-EU trade negotiations.
 
Fresh weakness could be in store for the pound this morning if December’s average weekly earnings data softens as forecast.
 
Evidence that wage growth slowed at the end of 2019 would suggest that consumer spending could ease in the coming months, exposing the UK economy to further downside pressure.
 
 
Further euro losses possible if German economic sentiment weakens
 
The euro struggled to find any significant momentum yesterday as doubts over the effectiveness of the European Central Bank’s (ECB) loose monetary policy mounted.
 
A Reuters survey of economists suggested that the current level of interest rates is unlikely to return inflation to the ECB’s target, putting a dampener on EUR exchange rates.
 
Any deterioration in the German ZEW economic sentiment index could drag the euro lower this morning, given existing worries over the outlook of the Eurozone’s powerhouse economy.
 
 
US dollar looks for boost from manufacturing index 
 
With US markets closed to mark Presidents’ Day the US dollar saw limited support on Monday, even as anxiety over the global growth outlook persisted.
 
Demand for the US dollar could pick up this afternoon, however, if the Empire manufacturing index improves as anticipated.
 
Evidence of a stronger month of activity within the US manufacturing sector would give investors reason to bet on the prospect of a stronger first quarter growth rate.
 
As long as the US economy looks set to outperform its rivals, even in the face of trade disruption and Covid-19 fears, this should offer the US dollar a leg up against its rivals.
 
 
Upcoming Data:
 
Tuesday, 18th February 2020
09:30 GBP Average Weekly Earnings
10:00 EUR German ZEW Economic Sentiment Index
13:30 USD Empire State Manufacturing Index
 

Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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