- Sterling sailing along nicely in run up to EU Summit
- US interest rate increase weakens USD
- German business confidence lowest for nearly a year
By Killian Greenwood
Sterling sailing along nicely in run up to EU Summit
Sterling is enjoying strength against other key currencies following the Brexit transition agreement, but it remains to be see what effects, if any, today’s EU Summit will have on the British currency, as we await the formalising of the Brexit agreement.
Following yesterday’s US interest rate announcement, markets are focused on today’s Bank of England (BoE) rate decision. A more aggressive outlook could boost the Pound. Most analysts and market commentators expect interest rates to remain the same at 0.50% and for the Bank of England maintain the status quo in terms of the asset purchase target of £435billion. Any signs of an interest rate increase in May will strengthen Sterling, although not significantly, as markets have priced this in for the most part.
US interest rate increase weakens USD
Across the Pond, the Federal Reserve did what was expected and increased interest rates, with some Federal Open Market Committee (FOMC) members also projecting four rate hikes throughout 2018, although the overall view of the committee was that only three rate increases would be needed. Despite reassurances from the committee on the strength of the US economic prospects, this had a negative effect on currency markets and caused the US Dollar to weaken against its major currency pairings. We could be looking at further determined monetary policy changes for 2019.
US President Trump plans to announce the trade tariffs on Chinese goods today, although the tariffs, expected to be on 100 Chinese goods – to be confirmed following consultation from US industry –will not be put in place straightaway. This action is fuelling the fire for trade war fears and could continue to weaken the US Dollar.
German business confidence lowest for nearly a year
The German IFO Business Climate Index, a key indicator of the health of the Eurozone economy, was released this morning, yielding disappointing results as business confidence in Germany fell to the lowest for almost a year. Taken alongside other recent disappointing European data, this could spell trouble for the Euro; and for the Eurozone’s economic outlook. The currency markets’ eyes will then turn to the UK to see what rhetoric comes from the BoE and get a sense of direction for Sterling against its European currency partner.