Sterling dominated market activity during Wednesday as the House of Commons voted that the UK should not leave the EU without an agreement in any circumstances. The UK currency pushed sharply higher and also helped drag the Euro stronger. Benign inflation data also triggered net losses for the dollar as yield support for the US currency declined. Uncertainty surrounding US-China trade negotiations and severe Brexit tensions will lead to further high volatility.
Pound Sterling (GBP)
Political events dominated on Wednesday with the Chancellor’s upbeat budget update having little impact. Sterling initially edged higher on expectations that a ‘no-deal’ Brexit would be ruled out. In chaotic scenes, the House of Commons approved an amendment which ruled out leaving without a deal in all circumstances. Although the government was in disarray, especially with reports of another Withdrawal Agreement vote next week Sterling moved sharply higher on short covering. GBP/USD pushed to 8-month highs around 1.3350 before correcting lower with GBP/EUR also making net gains to above 1.1700.
The Euro gained initial support on Wednesday from stronger than expected Euro-zone industrial production data and German yields also moved higher during the day. Political events tended to dominate price action with expectations that the UK parliament would rule out a ‘no-deal’ Brexit having a significant impact in underpinning confidence in European currencies. With a softer dollar tone, EUR/USD peaked near 1.1350 and held above 1.1300 on Thursday despite a limited dollar recovery as Euro demand held steady. Scandinavian currencies drew support from improved confidence in the growth outlook.
US producer prices data was slightly weaker than expected, reinforcing expectations of subdued inflation and a very patient Federal Reserve stance with no short-term move to increase interest rates. In this environment, the dollar gradually lost ground, especially with improved confidence in European currencies with the dollar index dipping to 1-week lows. Latest Chinese industrial growth declined to 17-year lows which triggered fresh concerns over the outlook and the dollar recovered some ground while USD/JPY trading above 111.50 as equity markets resisted losses and the yen failed to secure defensive support.
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