17/01/2020

Sterling reaches weekly high


GBP

Sterling edged up on Thursday, hitting its highest level of the week as investors paused their ramping-up of bets on the Bank of England cutting interest rates later this month.

GBP fell sharply earlier this week after another Bank of England Policymaker said he would vote for a rate cut unless economic data improved significantly. Weaker inflation data on Wednesday added to sterling’s woes.

Traders are now preparing for December’s retail sales data due on Friday, followed by the Purchasing Managers’ Index (PMI) surveys next week. Evidence that the economy failed to improve after the general election on 12th December will likely raise expectations for a rate cut and knock sterling lower.

Also weighing on sterling sentiment are worries about Britain’s ability to clinch a post-Brexit trade deal with the European Union, following their divorce at the end of this month. Prime Minister Boris Johnson has said 31st December 2020 is a hard deadline for the end of a transition period to negotiate the deal. Many observers say the timeline is too ambitious and risks leaving the UK without an EU trade arrangement at all.

USD

Major currencies mostly shrugged off the signing of the ‘Phase 1’ trade deal between the United States and China on Thursday. Most of the issues agreed upon had been expected and the threat of tariffs was not eliminated.

Beijing and Washington touted the ‘Phase 1’ deal, signed late on Wednesday at the White House, as a step forward in resolving their trade dispute. US Vice President Mike Pence said ‘Phase 2’ discussions had already begun.

Market enthusiasm was checked, because much of the agreement was priced in and it addressed few of the issues that led to the conflict in the first place.

Key Announcements

09.00 – GBP: Retail Sales MoM; Forecast at 0.5% against previous of -0.6%.


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