Hi all

Great to be on the British Expats forum and hope everyone is well.

This thread will have the latest currency updates and news. If you have any questions then please let me know.

Thanks

John

Summary of the last week
GBP: Sterling under pressure as rates remain relatively steady ahead of Tuesday’s Brexit vote;
USD: Dollar stages a soft recovery following speeches from Fed members Powell and Clarida;
EUR: French data continues to defy the optimistic views of the ECB, whilst also keeping the Euro soft.


GBP – Sterling continues to be under pressure following the latest reports that Theresa May is openly discussing a Brexit ‘Plan B’ as it appears she may have given up on attempts to try and get her current deal to pass a vote in Parliament on Tuesday. As a result, the GBP/USD rate fell by 0.2 per cent yesterday, due in part to the Dollar’s mild recovery after a tough couple of days. In fact, yesterday was a relatively quiet day for Sterling ahead of what promises to be a very volatile week as a failure by May to get her Brexit deal approved could well see Britain’s exit from the EU descend into chaos. With only 77 days left until March 29th, there appear to be growing fears amongst Brexiteers that the UK may yet stay in the European Union. This includes leading Brexit donors such as billionaire Peter Hargreaves and hedge fund manager Crispin Odey who said this morning that Britain will not leave the EU. Interestingly, this aligns with the threats made Foreign Minister Jeremy Hunt who, presumably as a last gasp attempt to convince MPs to get on side, emphasised the risk that pro-Brexit lawmakers were taking by rejecting May’s deal, which could lead to a ‘Brexit paralysis’ after which ‘who knows what might happen.’

USD – Yesterday, the Dollar made a recovery following more speeches from Federal Reserve members who emphasised the US Central Bank’s ability to be patient and flexible on monetary policy has given the stable nature of inflation (for which we will receive up to date numbers later on today). These comments were also echoed by Fed Vice Chair Richard Clarida who also struck a dovish tone and as result markets are now pricing in no additional rate hikes in 2019. The question now appears to be whether or not any rate cuts are expected as to whether we will see any considerable Dollar weakness going forward. Separately, the Dollar is also being affected by increasing optimism for a trade deal between the US and China, as yesterday, US Treasury Secretary Steven Mnuchin indicated that Chinese VP Liu He will ‘most likely’ visit Washington later in January for trade talks. That being said, President Trump has had to pull out of his upcoming trip to Davos to focus on coming up with a resolution to the government shutdown, which is now into its record-equalling 21st day. We feel that today may really bring things to a head as it will be the first payday that 800,000 US government employees will not be paid. Bearing in mind these are families with rent, bills and outgoings to meet, the ongoing shutdown is likely to hit hard, which in turn will impact US economy as a whole.

EUR – EUR/USD fell 0.2 per cent in yesterday’s session having previously hit 3-month highs as lower European share prices, and regional posturing ahead of the European Parliamentary elections in May caused the Euro to soften. In addition, yesterday saw French industrial production decline by 1.3 per cent and manufacturing production also decrease by 1.4 per cent, while goods production decreased by 2.2% in November. As a result, ECB member Francois Villeroy de Galhau yesterday claimed that the central bank should keep its options open and wait until the spring before tweaking policy. This is after minutes were released from the ECB’s December meeting which showed that their general assessment of the economy was still moderately positive as it attributed the weakening of the economy in H218 to one-off factors and a loss of momentum. Looking ahead, the next ECB meeting is scheduled for two weeks from now where all eyes will be on how the latest set of disappointing data across the Eurozone, and in France and Germany, in particular, will impact the ECB’s assessment.

Brexit to be Blocked?

GBP: May emphasises the government’s preference to block Brexit, as opposed to leaving without a deal as she enters the last chance saloon ahead of tomorrow’s Brexit Vote;

USD: Dollar fortunes being dictated by US-China trade talks, the Fed’s rate hike path, as well as the ongoing US Government shutdown;

EUR: Despite a soft dollar, EUR/USD remains within range as a result of continued economic weakness in the Eurozone.

Cross Party Consensus

17th January 2019

Yesterday evening, Theresa May’s government narrowly survived a no confidence vote instigated by the Labour party by 325 votes to 306. While the result was fully expected,

GBP/USD continues to move tentatively higher as a greater number of market-friendly outcomes are slowly being priced in. The first of these is the possibility for a cross-party deal which is currently being discussed in Parliament; whether this actually happens remains in question but the growing opposition towards a hard Brexit is being seen as Sterling positive. Following these negotiations, May will attempt to return to parliament on Monday with a ‘Plan B’, but again – markets are not holding their breath for any sort of successful vote. That being said, as already mentioned this week, what does appear to be almost guaranteed at this point is an extension of Article 50, which – based on previous rumours, has the potential to move Sterling even higher following a very good week. Looking ahead today, with no significant data out – the Pound’s fortunes will be led by quotes being shared by those close to negotiations, both domestically and within the European Union.

USD – The Dollar is slightly stronger this morning despite a number of ongoing factors that have the potential to weaken the currency going forward. Firstly, following the news that US prosecutors have started investigating Huawei, the Chinese multinational conglomerate, fears have risen over a decline in the overall sentiment between the US and China’s trade talks, which would serve to weaken the Dollar amid fears around overall global growth. Furthermore, safe haven assets saw a withdrawal yesterday following a broad rally in shares after solid US bank earnings. This is all, of course, happening amidst a backdrop in which the Fed is maintaining a very dovish tone with regards to future rate hikes, which has caused the Dollar to weaken over the past week and a half; its next meeting is set for January 29th. In addition, market sentiment is also being subdued by concerns that the US government shutdown is beginning to take a toll on the economy. Saying that despite all of these risk factors the Dollar strengthened this morning, as the data out of the US continues to remain upbeat – evidenced by yesterday’s Federal Reserve’s Beige Book data that showed the regional economic outlook remains generally positive with labour markets remaining tight.
EUR – EUR/USD was down 0.2% this morning, up slightly from the low of the day at 1.1378 which was caused by selling from short term accounts. Longer term, however, the Euro is struggling to make any larger moves higher due to persistent worries about the Eurozone economy. For this, today’s final December inflation reading should confirm the decline in price pressures, led in part by the fall in oil prices. This, combined with the weak data out of Italy, Germany, France and the Eurozone as a whole, suggests that any likelihood of a rate hike from the ECB in 2019 is steadily falling. As a result, for those of our clients who are looking to buy Dollars, using Euros – Dollar weakness will be the likely catalyst for any improvement in the rate. This can be evidenced by data this week which showed that Germany has only barely avoided a technical recession, while Mario Draghi warned that the economic growth in the Eurozone area has been weaker than expected.