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POUND STERLING (GBP)
Immediate political tensions eased slightly on Friday with Prime Minister May attending the G20 Summit, although there was no shift in parliamentary sentiment towards supporting the Brexit deal. Uncertainty remained extremely high as markets continued to assess the potential moves after any government defeat. GBP/USD dipped to lows below 1.2750 on month-end selling and GBP/EUR failed to regain 1.1300 despite net gains. Global events were dominant on Monday and GBP/USD pushed above 1.2800 on dollar losses with UK parliamentary developments under very close scrutiny.
Headline Euro-zone inflation declined to 2.0% for November from 2.2% previously, maintaining expectations of a dovish ECB policy stance, especially with oil prices declining sharply over the past few weeks which will cut inflation further. The Euro was unable to gain traction and EUR/USD gradually declined to near 1.1300 late in Europe as the dollar retreated. The Euro gained relief on Monday as an easing of trade tensions helped support the currency and dollar support faded. EUR/USD rallied to near 1.1375 as the Swiss franc retreated while a rebound in oil prices boosted the Norwegian krone.
Despite the slight shift in interest rate expectations, the dollar strengthened on Friday with further evidence of month-end demand. At the weekend G20 meetings, President Trump and Chinese President Xi announced a cease-fire in trade wars with potential further tariff increases on Chinese imports from January suspended for 90 days. The move triggered optimism that trade tensions would ease which boosted risk assets as equity markets strengthened and defensive dollar demand declined. The yen also lost ground while commodity currencies advanced, especially given strong gains for oil.
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