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Currency volatility forecast on EU summit and central bank decisions

currency-newsCurrency volatility forecast on EU summit and central bank decisions
We saw some pretty dramatic currency movement last week as the UK raced to reach an exit deal with the EU.
While a deal was eventually struck, concerns that trade talks could be delayed until February saw Sterling give up its initial gains.

So far this morning the pound has recorded modest losses against most its peers. GBP/EUR is down -0.2% at €1.1339, GBP/USD is holding around the day’s opening levels of US$1.3374, GBP/AUD has drifted to AU$1.7771, GBP/NZD shed 1% to strike a low of NZ$1.9303 and GBP/CAD is static at C$1.7170.

Keep scrolling to see what news you should be focusing on today…

What’s been happening?

Brexit dominated headlines and dictated pound movement for much of last week, with Sterling fluctuating dramatically as the thorny issue of the Irish border prevented the UK striking an exit deal with the UK.

A deal was finally reached on Friday, but Sterling quickly shed its initial gains on concerns that trade talks could be delayed until February next year.
 
According to Lloyds; ‘The breakthrough in Brexit talks on separation issues finally arrived on Friday. EU citizens’ rights and the financial settlement had already been agreed, but the main sticking point had been the Irish border after Brexit. The agreement guarantees no “hard border” in Ireland, even in the event of no future EU-UK trade agreement, but it also provides sufficient assurances for Northern Ireland’s unionists, including “no new regulatory barriers” with the rest of the UK without consent.

As a result, the European Commission will now recommend at this week’s summit of EU leaders (Thu/Fri) that “sufficient progress” has been made and that negotiations should move on to a transitional deal and a new trading relationship.’

Meanwhile, the US dollar held firm despite a mixed US employment report, and the New Zealand dollar surged as a new governor of the Reserve Bank of New Zealand was appointed.

What’s coming up?

Today might be rather quiet in terms of influential news and data, but the rest of the week certainly makes up for it.

With UK inflation, employment and retail sales data due out over the next few days and the Federal Reserve, Bank of England (BoE) and European Central Bank (ECB) all due to deliver interest rate decisions this week, we can expect considerable currency movement.

The Fed is the only one of the three central banks expected to make any changes to monetary policy, but as an increase in US borrowing costs has been priced in for months, the impact of an adjustment may have comparatively little impact on the US dollar.

Investors will be much more interested in the tones adopted by the three central banks, with their respective currencies reacting to any hints about the path monetary policy will take in 2018.

Of course, Thursday’s EU summit is also likely to have an impact on pound exchange rates.

After last week’s deal the EU is expected to confirm that the UK has made enough progress to move on to trade talks and discussions about a transitional arrangement.

If it appears that these discussions will begin immediately the pound could climb, while any hints of delay would be Sterling-negative.
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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