IFX Market Report: Monday 3rd February 2020

The pound continued its rally on Friday after the Bank of England kept interest rates still after receiving news of improved growth. Analysts believe this rally could be short-lived as the UK exited the European Union on Friday evening and will now have to negotiate trade deals across the rest of this year. The pound gained 0.8% against the dollar and 0.2% against the euro.

The downside risk for the pound is viewed as quite high as negotiations progress, the UK has already said it will not be aligning with EU regulations which would mean the EU are less inclined to give the UK access to the Single Market. Prime Minister Boris Johnson has also said he is hoping for a Canada-style agreement with the EU.

GBPUSD opened at 1.3126 and climbed across most of the day, closing just before hitting a high of 1.3205

GBPEUR opened at 1.1902 and hit a high of 1.1920 in the morning before dropping back slightly to close at 1.1906

Currencies linked to global trade were lower on Friday as the World Health Organisation announced that the coronavirus outbreak was a global health emergency. The Australian dollar fell to a four-month low and Chinese yuan fell also fell against the dollar. The death toll in China has reached 213 and the number of cases stands close to 10,000.

The New Zealand dollar also dropped 0.5% against its US rival as travel and trade restrictions were advised by the WHO. The effect on the Chinese economy will likely be revealed more gradually. China’s critical role in the global supply chain means that this will have a wider impact on global economies further down the line.

The dollar index remained unchanged whilst elsewhere the euro fell slightly after the economy grew less than expected in the last quarter of 2019. However, it recovered later to finish 0.1% higher.

EURUSD opened at 1.1028 and jumped sharply across the day, closing at 1.1081 but reaching a high of 1.1096 later in the evening

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