GBP

The pound fell to a weekly low yesterday, despite positive inflation data. UK Inflation surged to a six month-high in January, beating expectations of 1.6% as it came in at 1.8%, close to the Bank of England’s 2% rate. This should see policymakers hold off on an interest rate cut at the next meeting as this is the latest in a string of positive data releases. Furthermore, investors are expecting plenty of fiscal stimulus in the March budget by new Chancellor Sunak, and a spending boost should restrict calls for an imminent rate cut.

USD

Last night saw the Federal Reserve release its minutes from the January meeting, where comments pointed to a satisfaction with the current monetary policy stance. It seems interest rates in the US are likely to remain unchanged for the time being as they expressed confidence in the state of the US economy, despite the fact that markets are pricing in a near-certainty of at least one cut this year. However, they did point to a need to monitor certain risks, specifically trade tensions with China, the state of inflation and the ongoing coronavirus situation.

Key Announcements

EUR - 12:30: ECB Monetary Policy Meeting.

GBP

Sterling climbed to three and a half year highs against EUR on Tuesday. Gains in GBP-EUR rate come from a combination of ongoing concerns that the coronavirus will impact eurozone economy growth and the news that British Finance Minister, Rishi Sunak, will deliver the UK budget as planned at the beginning of next month.

Rishi Sunak, who took over from Sajid Javid last week, announced that he was 'cracking on with preparations' for the 11th March budget, amid concerns that the budget may be delayed.

GBP had initially opened the Tuesday session lower, following comments from the UK Chief Brexit Negotiator saying the UK would not be threatened into following EU rules to win a free trade agreement. By 2pm, the GBP-EUR had reached a high of 1.2069.

Unemployment data also played its part in moving sterling higher, as UK unemployment held at 3.8% - its lowest level since 1975.

EUR

The euro fell to it’s lowest level for 3 years against USD on Tuesday as odds of another ECB rate cut increased following the release of a German survey which showed investors losing confidence in the German economy.

Germany’s ZEW index fell sharply below expectations with the economic sentiment component reading 8.7, well below the 21.7 forecasted, and the current conditions component reading -15.7, below the -10.3 forecasted.

According to those that responded to the ZEW survey, the coronavirus is expected to have negative implications on global trade leading to weaker growth in Germany for the first quarter at least. This survey is concerning and follows the release of Destatis figures for Germany which showed the German economy stagnating in quarter 4 of 2019, before the Coronavirus had even threatened the economy.

As a result, markets are now expecting a 10 basis point cut from the ECB this year. The news resulted in the EUR-USD falling to a low of 1.0793.

Key Announcements

09:30 – GBP: Consumer Price Index (YoY); expected to rise to 1.6% from previous 1.3%.
19:00 - USD: FOMC minutes.

EUR

The euro fell to 3-year lows yesterday as investors worried about weakening growth in the region, while Chinese efforts to limit the damage from a Coronavirus outbreak appeared to calm markets, with the yuan and Australian dollar supported.

The session was light on economic data but traders are looking to a German business sentiment indicator due today and flash purchasing managers indexes on Friday for further evidence on the state of the eurozone economy. Last week data showed in particular that momentum in Germany, the region’s powerhouse economy, was struggling.

GBP

UK's Chief Brexit negotiator David Frost said in a lecture in Brussels on Monday that the EU’s insistence on the UK following its rules will reduce the chances of a trade deal.

Frost added that the UK does not require a unique or special deal. Instead, the UK are requesting a similar deal in which has already been struck with countries like Canada and South Korea. These countries have virtually tariff-free trade with the EU but do not have to follow EU rules.

Key Announcements

10:00 – EUR: German ZEW Economic Sentiment.

GBP

The pound had a strong showing on Thursday as Chancellor Sajid Javid resigned and investors positioned for a higher-spending budget under a new finance minister. It was a well-known secret that Javid was cautious when it came to fiscal policy, and this was the apparent root of tension between Number 10 and the Chancellorship. His successor, Rishi Sunak, is expected to far more aligned with the Prime Minister and market investors are now expecting a more expansionary budget, lessening the chances of the Bank of England needing to intervene. Expectations of more fiscal stimulus mean money markets are likely to cut back on the likelihood of a Bank of England Interest rate cut at the next meeting.

EUR

The Euro suffered yesterday as investors sought out U.S. assets due to new cases of the coronavirus outbreak. Europe has particularly strong trade links to Asia, and growth will continue to be hampered whilst this key link is damaged. Germany in particular has been affected by this, and the latest Gross Domestic Product reading for Q4 is reflective of this, with 0% growth being reported, worse than the expected 0.1%.

Key Announcements

10:00 - EUR: Gross Domestic Product (QoQ) (Q4); expected to remain at 0.1%
10:00 - EUR: Gross Domestic Product (YoY) (Q4); expected to remain at 1%
13:30 - USD: Retail Sales (Jan); expected to fall to 0.3% from previous 0.5%
15:00 - USD: Michigan Consumer Sentiment Index (Feb); expected to fall to 99.5 from previous 99.8

GBP

Sterling saw its biggest daily gain against the euro on Friday since the general election due to the appointment of new Chancellor Rishi Sunak. The pound strengthened due to the belief that Sunak will take a more liberal stance with his spending plans in order to boost the economy. Many believe that a more fiscal approach is needed to combat poor economic growth faced by the UK after Brexit and by increasing government spending this could be a way growth could increase.

Sunak coming in as the new Chancellor opens doors for more public spending at March’s budget announcement. Sterling could see more upside and rise above 1.21 against the euro as chances of a rate cut have diminished. Furthermore, sterling rose back above 1.30 against the US dollar after the appointment of Sunak and rose more than 1% against all majors.

EUR

The euro fell to its lowest levels in two and a half years against the US dollar on Friday, due to a combination of fears of the coronavirus impacting the eurozone and poor economic data. The euro fell to 1.0826 against the dollar, its lowest level since May 2017. Eurozone’s GDP grew by 0.1% quarter on quarter in Q4 in line with forecasts, but it’s year on year growth was weaker than expected at 0.9%.

Furthermore Germany, the eurozone’s biggest economy, stagnated in Q4 due to weak private consumption and state spending. This has brought back fears that Germany could be heading for a recession as they look to replace Angela Merkel.

Key Announcements

None.