IFX Market Report: Thursday 16th January 2020

The pound fell on Wednesday after inflation data showed that prices rose at their slowest pace in three years, increasing the expectations of a rate cut at the Bank of England’s January meeting. The hints from the central bank about a rate cut have put Sterling under pressure this week, aided by weak economic growth and industrial production data.

The pound fell by 0.25% against the dollar and 0.2% against the euro. Some analysts are predicting a 60% chance of a quarter-point rate cut at the January meeting. The reaction from the Bank of England to economic weakness could possibly have been warranted earlier in 2019 but Brexit had overshadowed the political environment. The Bank is now better placed to make policy changes.

GBPUSD opened near a high of 1.3036 and fell to a morning low of 1.2993 after the inflation data release. A recovery in the afternoon meant it closed only slightly lower at 1.3029

GBPEUR opened at 1.1702 and fell to a midday low of 1.1665, recovering only slightly in the afternoon to close at 1.1676

The dollar was weaker against the euro and the Japanese yen on Wednesday as the US and China signed a trade deal. The new agreement rolls back tariffs and increases purchases of Chinese goods and services and has therefore increased global risk appetite. The euro gained 0.22% against the dollar while the greenback also lost 0.1% against the yen.

The US dollar remained 0.4% lower against the Swiss franc after it reached an almost three-year high on the back of being added to a US watchlist of currency manipulator. The Swiss National Bank has therefore been deemed less likely to intervene to prevent the appreciation of the franc.

Elsewhere the Russian rouble was weaker after the resignation of Prime Minister Dmitriy Medvedev’s government.

EURUSD opened at 1.1129 and made sharp gains in the morning to reach an early afternoon high of 1.1160 where it remained until closing.

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