IFX Market Report: Monday 16th December 2019

The pound enjoyed a 2% surge against the dollar on Friday following a huge win for Boris Johnson’s Conservative Party. Having hit above the $1.35 mark, investors are unsure that the pound will manage to make gains beyond this level. Analysts are optimistic that the size of Johnson’s majority will make a trade deal in the 11 months after January 31st even easier.

The election result has caused implied volatility to collapse, indicating that investors don’t think there is reason for large pound swings going forward. However, many banks are not placing further bets on sterling as the downside risk is seen as lightly higher than the upside risk for the moment, for both political reasons as well as profit-taking.

GBPUSD opened at 1.3421 and fell across the day, closing near a low of 1.3322

GBPEUR opened at 1.2019 and performed similarly, reaching a low of 1.1941 and closing at 1.1994

The dollar index that measures the greenback against six major currencies was down 0.18% though risk-appetite remained low. The US and China agreed to a long-awaited “phase one” trade deal which seems a reduction in US tariffs and an increase in Chinese purchases from American products. This is a positive development in the negotiations which have kept investors on their toes for months. The tariffs due to come into place on Sunday were suspended.

Though there has been progress, currencies that are sensitive to trade progress remained weaker against the dollar as too many investors feel that progress has been made in the past, only for it to come undone in a sudden escalation of tensions.

EURUSD opened at 1.1166 and fell across the day, closing at 1.1132 and reaching a low of 1.1113 in the evening

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