Underlying political and economic tensions remained extremely high during Thursday, although overall market volatility subsided. Sterling trading ranges narrowed after intense volatility during the previous few sessions which also had a calming influence on other major currencies. The dollar initially regained some ground on US-China trade uncertainty before retreating as markets took a slightly more confident tone over the global growth outlook later in 2019.
Pound Sterling (GBP)
Political events dominated again during Thursday as House of Commons drama continued. The government very narrowly secured approval for requesting a short extension to Article 50 if a Withdrawal Agreement is approved by March20th and a longer extension if there is no agreement. Underlying tensions remained intense, although market reaction was more measured and volatility eased. GBP/USD settled below 1.3250 with GBP/EUR consolidation below 1.1700 as parliament’s rejection of another referendum limiting buying. Markets were braced for further choppy trading on Friday with caution ahead of weekend developments.
The German IFO institute downgraded its estimate of 2019 GDP growth to 0.6% from 1.1% previously, reinforcing concerns over the underlying growth outlook and hampering the Euro, although there was little change in yields. On the political front, a lack of positive Brexit developments also curbed currency support. Overall selling was limited and EUR/USD found support below 1.1300 with slight gains on Friday as hopes for stronger demand conditions later in 2019 underpinned sentiment. Scandinavian currencies made further net headway on expectations that they were undervalued from a medium-term perspective.
US economic data releases had little impact and Federal Reserve speakers were silent ahead of next week’s policy meeting. Initially, there was slightly more caution over the US-China trade outlook which curbed dollar selling, although US officials attempted to maintain an upbeat stance and the tone was more confident on Friday which triggered a fresh dip in defensive dollar support. The Bank of Japan made no policy changes, but warned over weak exports. USD/JPY advanced to the 111.90 area before fading on wider losses and tough rhetoric from North Korea while commodity currencies made net gains.
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