GBP cools off its recent bull run as traders take profits

Jan. 18, 2019 (Western Union Business Solutions)  – Constructive news on the trade war had a mixed impact on major currencies. The U.S. dollar was mostly flat as losses against the euro and Canadian dollar were offset by gains against the yen and sterling. Market morale is taking some comfort from reports that the U.S. is mulling reducing tariffs on Chinese goods to help broker a trade agreement. Reduced trade tensions weighed on safe havens, sending the Japanese currency to its lowest in more than two weeks. Sterling dipped from two-month peaks as weaker than expected U.K. consumer spending catalyzed a bout of profit taking on its broad outperformance this week. Britain’s Brexit crisis has shown marked signs of going from a boil to a simmer as fears of a potentially disastrous no-deal exit from the bloc recede. In focus today will be reports on U.S. consumer morale and Canadian inflation.

 

GBP

 

Sterling slipped from two-month highs as sobering news on the U.K consumer spurred many to take some chips off the table. Sterling pared some of its gains but remained a penny higher on the week as the rocky week of U.K. politics suggested a fading likelihood of Britain exiting the EU without a deal, markets worst case scenario. The Brexit process is in wait and see what the prime minister’s Plan B looks like when Theresa May reveals it Monday. The pound could be in the early innings of a significant rally if Britain in the end should decide to cancel Brexit. On the data front, U.K. retail sales tumbled nearly a percent in December, news that highlighted the vulnerable state of the economy months ahead of its expected departure from the EU in March.

 

EUR

 

The euro eked out a gain but its vital signs remained bearish as concerns about a slowing euro zone economy put a lid on meaningful gains. The euro was on track for a weekly loss with the big blow this week coming from news that Germany’s economy grew at the slowest pace in 5 years in 2018. Recent numbers suggest the economy is likely to remain in a lower gear over the foreseeable future, casting significant doubt on an ECB interest rate hike this year.

 

CAD

 

Canada’s dollar appreciated after news of warmer than expected inflation to close out 2018 kept the door ajar to higher interest rates. Overall inflation unexpectedly rose to a 2% annual rate in December, compared to forecasts to remain at 1.7%. However, less volatile underlying inflation steadied below the Bank of Canada’s 2% goal. While the data was consistent with tame inflation, it appeared warm enough to keep a rate hike later this year in the conversation, a notion that’s positive for the loonie’s appeal.

 


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