The pound tumbled yesterday after the Bank of England (BoE) forecast a UK recession beginning in the fourth quarter of this year.
Sterling remains mostly flat so far this morning, with GBP/EUR muted at €1.1682, GBP/USD subdued at $1.3028, and both GBP/CAD and GBP/AUD holding steady at C$1.6997 and AU$1.8864 respectively. GBP/NZD has retreated to NZ$1.9630.
Looking ahead, the latest US retail sales figures will be in the spotlight today, potentially lending support to the US dollar if sales growth rises in line with expectations.
What’s been happening?
The pound was mostly rangebound mid-week as markets responded to the UK’s consumer price index.
According to data published by the Office for National Statistics (ONS), domestic inflation slowed from 1.5% to a three-year low of 1.3% in December.
Coupled with some dovish comments from the BoE’s Michael Saunders, this propelled the odds of a January rate cut to 60%.
Meanwhile, the euro edged higher yesterday despite Germany’s full year GDP confirming a sharp slowing of growth last year.
Destatis reported Germany’s economy only expanded by 0.6% in 2019, down from 1.5% in 2018 and the worst pace of expansion since 2013.
At the same time, the US dollar faced some broad losses on Wednesday as the US and China finally signed their ‘phase one’ trade deal.
While the deal was welcomed by markets it failed to offer much support to the ‘greenback’ amid concerns it doesn’t go far enough.
What’s coming up?
Looking ahead, the US dollar may enjoy some modest gains today with the release of the latest US retail sales figures.
Economists forecast that sales growth will have ticked up from 0.2% to 0.3% in December, potentially buoying USD exchange rates.
For EUR investors the spotlight today will be on the European Central Bank (ECB), with the publication of the minutes from the bank’s December policy meeting and a speech by ECB President Christine Lagarde both on the agenda.
In the absence of any notable UK economic data, the focus for GBP investors may remain on the BoE, likely limiting any upside in the pound as rate cut speculation continues to run rampant.
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)