By Simon Eastman
Last week the pound steadied itself against its major pairings as markets looked to the European Central Bank and the Federal Reserve for their interest rate meetings and current stance on monetary policy.
The Fed held their interest rates steady, as was expected, although the minutes from the meeting are not available until later in the month. Inflation and some positive jobs data lent to the fact the were unlikely to cut rates after the last meeting where we saw a bold 50 basis point cut.
The European Central Bank (ECB) was next up on Thursday, where it was widely expected they would be cutting again, which they did by 25 basis points. Markets expected this but seemingly a bit much as we initially saw the pound dip against the single currency, but it immediately came back up again, staying above the key resistance level we have tested recently. As the week closed off, the pound rallied once again pushing up towards new resistance ceilings as positioned closed off and profits were taken ahead of month end.
At the time of writing, markets have opened strongly for sterling in the Asian markets with the pound breaking up through the resistance and back above key trading levels on GBP EUR. On the flip side, GBP USD is down over one percent, which gives indications that the pound is benefitting from a stronger dollar, given the euro is also down nearly 1.5 percent against the USD.
With news of President Trump’s tariffs over the weekend, implementing a 25 percent tax on all Mexican and Canadian imports, and a surprisingly low, 10 percent against China, investors head towards the safer haven dollar again as Trump fires the first shots in a potential trade war. Analysts fully expect things could escalate with the Chinese, so it’s a case of watch this space as events unravel.
As February begins for traders in Europe and the UK we will see if the trend continues as we start to see the data flows once again. Kicking us off is the following key releases:
Monday – EU core consumer prices inflation and US ISM manufacturing PMI, employment index and new orders. The Feds Bostic and Musalem also make speeches.
Tuesday – US factory orders and speeches from Fed members Bostic and Daly.
Wednesday – German and EU composite PMI, EU producer price index, US employment change, US ISM services PMI, employment index and new orders. ECB member Lane and US Fed member Goolsbee speeches.
Thursday – AUD trade balance, German factory orders, EU retail sales, BoE monetary policy and interest rate meeting, policy report and speech by Governor Bailey. Canadian Ivey PMI
Friday – German industrial production and trade balance, ECB speech by member De Guindos, BoE speech by member Pill, Canadian employment change and average wages, US non-farm payroll, average earnings, unemployment rate and US Fed speech from members Bowman and Kugler.
As you can see, it’s a busy first week with some key releases and lots of speeches by central bank members along the way. The focus will be on what the Bank of England do on Thursday and what number the US post for NFP. Anyone with a currency requitement coming up in the days, weeks, or months, make sure to speak with one of the team at your earliest convenience for some friendly guidance.