IFX Market Report: Thursday 19th September 2019

The pound fell yesterday morning as poor inflation data saw the prices of goods and services rise less than expected in August. Economists had predicted a 1.9% rise rather than the 1.7% announced. The pound was down 0.2% against the dollar but this reaction was seen as “knee-jerk” by some analysts, who said that Brexit developments will continue to be the key driver to the pounds value.

The British currency reached a six-week high on Tuesday on the back of possible optimist that Boris Johnson would reach an agreement with the EU. However, this is looking less likely as EU leaders continue to ask for concrete ideas from the UK to break the deadlock and have now placed a deadline for any new deal proposal as the end of September. European Commission President Jean-Claude Juncker yesterday said the risk of a no deal was “very real”.

The Bank of England is expected to hold interest rates at 0.75% when it meets today, with arguments being made for rates possibly rising and falling in the event of a no deal Brexit.

GBPUSD opened at 1.2480 and hit a morning low of 1.2452 before picking up again to close almost unchanged at 1.2478

GBPEUR opened at 1.1286 and hit a low of 1.1265 before recovering to close at 1.1278 and hitting a late evening high of 1.1322

The dollar hit a seven week high against the yen on Wednesday after the Federal Reserve cut interest rates by a quarter of a percentage point, as was predicted, but gave an uncertain outlook on the necessity of future easing and were less dovish than expected about the state of the US economy. The dollar rose 0.3% against the yen and the dollar index gained as much against a basket of other currencies.

President Donald Trump railed against the decision saying that Fed Chairman Jerome Powell had “no guts, no sense, no vision!”. The Federal Reserve has struck a more hawkish tone than was expected despite the global uncertainties and analysts expect the dollar to maintain its new highs. This dollar strength caused the euro fell 0.3% after the announcement.

EURUSD opened at 1.1056 and despite an early morning dip to 1.1045, the pair recovered to close slightly higher at 1.1062. Following the interest rate announcement the pair then dropped to a low of 1.1028 in the late evening.

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