Huawei arrest causes risk spike: pound benefits

The pound moved higher against many of its risk-sensitive peers on Thursday as Brexit took a back seat to renewed tensions between the US and China following the arrest of a Huawei executive in Canada.

Sterling appears to have lost momentum this morning however, with GBP/EUR muted at €1.1209, GBP/USD subdued at $1.2750 and GBP/CAD flat at C$1.7080, while GBP/AUD and GBP/NZD hold steady at AU$1.7675 and NZ$1.8548 respectively.

Coming up today will be the release of the latest US non-farm payroll figures, with the US dollar potentially weakening if they are shown to have underperformed.

What’s been happening?                          
                            
The pound pushed higher against the majority of its peers yesterday, although this appeared to be largely due to broad weakness through currency markets rather than positive Sterling sentiment.

Many of the pound’s risk sensitive peers fell back on Thursday as markets were rattled by the arrest of Chinese tech giant Huawei’s chief financial officer Meng Wanzhou in Canada.

The arrest and possible extradition to the US fuelled fears that US-China trade tensions could begin to flare again, just days after signing a 90-day truce on further tariffs, leading investors to shun riskier assets.

The GBP/EUR exchange rate remained range bound throughout yesterday’s trading session as the euro steadied on the back of Germany’s latest industrial data, which revealed a surprise upswing in factory order growth in October.

Meanwhile the GBP/USD exchange rate trended higher on Thursday as the US dollar was left in the lurch following a sharper-than-expected drop in US ADP employment growth in November, although the ‘greenback’s losses were ultimately capped by a robust reading in the accompanying ISM non-manufacturing PMI.

What’s coming up?

Looking ahead, the US dollar is likely to be in focus this afternoon with the release of the latest US payroll figures.

This may result in the ‘greenback’ falling back again today, with the sharp slide if yesterday’s ADP employment figures are reflected in today’s payroll reading.

Meanwhile, the euro may struggle to find momentum this morning as the final release of the Eurozone’s third quarter GDP figures are expected to confirm that growth in the bloc slowed to a four-year low in the three months to September.

Finally, in the absence of any major UK data releases, movement in the pound is likely to continue to be dictated by Brexit sentiment, likely limiting the upside potential of Sterling unless some positive Brexit developments emerge.