The impact of a UK-EU trade war
On 13 June, the UK government revealed legislation that would allow it to scrap parts of the Northern Ireland protocol.
- Pound stumbles as Brexit concerns rise
- Latest signs of Eurozone slowdown weigh on euro
- US dollar recoups losses
Pound struggles before construction data
The pound was put on the defensive at the start of 2020 amid renewed Brexit jitters.
The UK is set to officially leave the EU at the end of January and it appears the realities are beginning to set in for some GBP investors.
Also dampening the appeal of the Sterling yesterday was the publication of the UK’s manufacturing PMI, which revealed growth in the UK factory sector suffered its second-worst contraction since 2012 in December.
The UK will publish its latest construction PMI today. Will another slump in construction sector activity exert some pressure on the pound this morning?
German inflation uptick could boost euro
As the Eurozone manufacturing sector saw its eleventh consecutive month of decline in December the euro struggled to find support.
With the German manufacturing decline deepening, markets were alive to the risk of the Eurozone’s powerhouse economy losing further momentum in the coming months.
However, the single currency may return to a positive footing this afternoon if the German consumer price index picks up as anticipated.
An acceleration from 1.1% to 1.4% on the year would suggest that inflationary pressure is heading in the right direction, even though it would still fall short of the European Central Bank’s (ECB) 2% target.
US dollar
The US dollar got off to a roaring start to the year, recouping the majority of its losses from earlier in the week as it was aided by China’s move to improve liquidity in the country.
The ‘greenback’ then extended these gains overnight as the US air strike in Iraq unnerved some investors and stoked safe-haven demand.
However, USD’s New Year rally could be cut short if growth in the US factory sector is shown to have contracted again in December as expected.
Also influencing USD exchange rates will be the publication of the FOMC minutes from the Federal Reserve’s December policy meeting.
USD investors will be looking for more clarity on the Fed’s policy plans for 2020 and the minutes could help counter any weakness in the US dollar if they reiterate the bank’s plans to keep rates on hold this year.
Upcoming Data:
Friday, 3rd January 2020
09:30 GBP Construction PMI
13:00 EUR German Consumer Price Index
19:00 USD Federal Open Market Committee Meeting Minutes
