No-deal Brexit Concerns Dominate Sentiment Towards the Pound
The GBP vs USD rate edged back over the 1.29 level yesterday morning, as the pair attempted to move on from last week’s drubbing, which saw the pound slide 2.3% against the dollar – its worst loss since mid-December. Before it could begin mounting any kind of recovery, however, it briefly slipped to a 10-week low on the back of growing no-deal Brexit concerns. A quiet day in the economic calendar yesterday meant there was nothing to support or trip up this slight uptick in value data-wise.
According to press reports released over the weekend, the upcoming UK-EU trade negotiations could crumble “within months” of commencing. These downbeat headlines are feeding investor anxiety over Brexit, causing sentiment towards the pound to deteriorate.
Fed Governor Points Towards Economic Expansion
An already buoyant dollar – which benefited from strong data last week and consistent demand for safe-haven currencies amid the ongoing coronavirus outbreak – was given a further leg up by Michelle Bowman yesterday. The US Federal Reserve governor stated that the current setting of the central bank’s monetary policy “should help support the economic expansion”. According to her outlook, the domestic economy will experience “continued growth at a moderate pace” with the unemployment rate “remaining low”. She also believes inflation will rise “gradually” to meet the Committee’s 2% objective.
Addressing a community bankers conference in Florida, Ms Bowman added: “The national economic backdrop looks very favourable, which should be broadly supportive of your local economies”.
Looking Ahead
A quiet couple of days in the US economic calendar means dollar investors will remain focused on the impact of the coronavirus outbreak on the global economy. They will also be keeping a close eye on Fed Chair Jerome Powell’s semi-annual appearance before Congress today and tomorrow, during which he will provide a broad overview of the economy and monetary policy.
A slew of data from the UK today is dominated by the fourth quarter GDP figure. Any signs of an economic slowdown during the last three months of 2019 would add to the pound’s current Brexit related woes. December’s UK balance of trade figure will also command the attention of investors, who will be monitoring the release for any indication of a slide into a state of deficit.
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