IFX Market Report: Monday 15th July 2019

The pound ended a 9-week losing streak against the euro and moved away from 6-month lows against the US dollar on Friday despite weak economic data and the increased likelihood of an interest rate cut in the event of a no deal Brexit.

Bank of England policymaker, Gertjan Vlieghe said in a speech on Friday he would be prepared to aggressively cut interest rates, perhaps to almost zero if the UK left the EU without a deal on October 31st. The BoE’s official position is that rates could move in either direction as they would have to weigh up which was the greater threat, a rise in inflation or a recession. However, other members of the 9-person rate setting policy committee have said rates would probably need to fall to offset the shock to the economy caused by a disorderly Brexit.

Some analysts are becoming more optimistic about the British currency as they believe it to already by trading close to a “crisis” level and they don’t see being able to push much lower apart from a no-deal Brexit. These new lows are likely to be reached in September when Parliament returns. UK inflation is expected to remain within the 2% target and the consumer price index data will be released on Wednesday.

GBPUSD 1.2541 and fell to a low of 1.2527 in the morning before picking back up across the rest of the day to close at 1.2567

GBPEUR opened at 1.1131 and was unchanged in the morning before rising sharply to a high of 1.1160 in the early afternoon and closed slightly lower at 1.1156

The US dollar fell on Friday for the third consecutive day, still weighed down by the expectation of an interest rate cut late this month. The dollar fell 0.1% against a basket of currencies with its worst daily loss against the Swiss franc and the Japanese yen in more than three weeks. Despite positive data showing producer prices rose 0.3% and that the PPI rose 1.7%, investors are still firm in their belief a 0.25% rate cut is on its way.

The interest rate cut by the Fed might be offset by many other central banks taking similar action. The European Central Bank is expected to cut its discount rate further into negative territory at its September meeting. The euro has lost 1.7% since the start of the year however it gained 0.2% against the dollar on Friday. It had fallen earlier in the day after comments from an ECB Governing Council member saying the bank will need further expansionary measures “in the coming weeks” if the eurozone economy does not improve.

EURUSD opened at 1.1265 and fell across the morning to a low of 1.1245 in the early afternoon. This was followed by a swift recovery to close at 1.1267 and a reaching a late evening high of 1.1282

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