Market Brief: GBPUSD reaches new year high overnight

11 Sep 2018

Ian Wilson

Dealing team

The main story in the past 24 hours is that GBPUSD hit the psychological 1.40 level for the first time since the Brexit vote, before retracting lower. 

Today's data releases
  Key levels
09:30 UK public sector net borrowing (Dec)   Support Resistance
10:00 EU ZEW survey - economic sentiment (Jan) GBP/USD 1.3878 1.4026
15:00 EU consumer confidence (Jan) GBP/EUR 1.1146 1.1511
15:00 US Richmond Fed manufacturing index (Jan)  

Market overview

The main story in the past 24 hours is that GBPUSD hit the psychological 1.40 level for the first time since the Brexit vote, before retracing lower. This move doesn’t come from any single data point or comment and is a continuation of the trend which combines overall dollar weakness with a more upbeat mood in relation to Brexit negotiations. Similarly GBPEUR has also risen on this positive sentiment and is up hovering around the 1.14 level. It is at its highest level in a month. Interestingly this comes as Fitch, the rating agency, said yesterday that the UK will be among the weakest major housing markets in 2018 and the IMF slightly downgraded UK economic growth forecasts for 2019.
 
Meanwhile out in the US Congress last night ended the 3 day government shutdown as the Senate and the House of Representatives agreed to a stop gap funding bill which would keep the government funded through until 8 February. The breakthrough was made after Senate Democrats agreed to Republican promises to hold a debate on immigration and particularly the so called ‘Dreamers’ (DACA Act) after 8 February. The vote was carried 81-18 in the Senate and 266-150 in the House. Despite the breakthrough overnight this looks to be another exercise in kicking the can down the road, as the same disagreements may hamper discussions over the spending bill come 8 February. Meanwhile Donald Trump came out with his first major protectionist policy which is likely to appease his rust belt voters. He approved broad tariffs on imports of solar cells and washing machines which appears to be the beginning of a squaring off with China and other trade partners.
 
In Japan the Bank of Japan overnight announced it is keeping monetary policy steady with the short-term policy rate unchanged at negative 0.1 percent and the 10-year yield target around 0 percent. This met market expectations. Interesting they did say that inflation expectations had stopped falling.
 
Finally it was quiet data-wise yesterday with only point of note being a worse-than-expected release of the Chicago Fed National Activity Index (Dec).

 

The day ahead

Today we have UK Public Borrowing figures at 09.30 and CBI Industrial order expectations at 11.00 out of the UK as well as German ZEW economic surveys data at 10.00 and Eurozone consumer confidence at 15.00. The latter two points in relation to Europe are of more interest as they should give us a good indication of growth prospects in the Eurozone. Out in the US we get the Richmond Red Manufacturing Index at 15.00. Throughout the day we will also be watching the World Economic Forum and a meeting for ministers of Finance for EU for any insightful comments.

 

Thought of the day

In a continuation of Amazon’s push into new and unchartered territory, the tech giant has debuted the first shop without a checkout in the centre of its campus in Seattle. The new store has been in testing since December 2016 and through a system of hundreds of cameras and computer algorithms, shoppers are able to simply walk out of the door after choosing their goods. After launching in 1994 as an online bookseller, it has now diversified to such an extent that it must the first port of call for many consumers out there. The ability to constantly push boundaries and experiment has led Amazon to become the largest internet retailer in the world as measured by revenue and market capitalization. If your business is constantly looking to evolve its processes and look at new ways of doing things, the Investec dealing team can talk you through different FX hedging strategies that could allow you to capitalise on moves but remain fully protected. Contact your dealer on 0800 055 6339 to find out more.

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