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Sterling out-performing everything

Published: Friday 25 January 2019

  • Euro hammered by European Central Bank dovishness and poor data
  • Rumours of Reserve Bank of Australia rate cut hit AUD
​​​​By David Johnson

Sterling is out-performing everything at the moment. Despite the randomness and strangeness of the Brexit tosh and nonsense coming out of every orifice in Westminster, the underlying UK economy is relatively robust and as we edge nearer to the Brexit end date, traders appear to be relieved that it may all be reaching a conclusion…of some sort. The lack of UK data today and the fact that the pound has strengthened all week, should be treated with some caution though. Traders will often close their positions down before a weekend and that could cause a little bit of correction in the Pound.
Euro hammered by European Central Bank dovishness and poor data
The Euro was hammered yesterday by poor French and German data as well as a dovish report from Mario Draghi, the European Central Bank’s head honcho. He even talked about the potential for an EU recession. It is worth remembering though that a weak Euro is very advantageous for Europe’s exporters. Just as Mark Carney is the merchant of Doom for Sterling every time he speaks, Mario Draghi isn’t averse to pulling the Euro down from time to time.
The European Central Bank (ECB) left their base rate on hold at zero percent and are still charging banks who place funds on overnight deposit with them. There seems little doubt that their base rates will stay this low for quite some time and they may even have to cut again if the EU economy continues to slow at its current pace.  Technically, the GBPEUR exchange rate has breached a significant resistance level. If it stays above 1.12550 into the weekend, many chartists will start looking at higher levels. That’s great news for GBP sellers but it isn’t confirmed yet, so short term needs can be filled here. This morning’s German IFO business sentiment indices are forecast to be pretty dire, so there may be more weakness before any correction.
Sterling shot up through USD 1.30 yesterday and that too was a significant psychological barrier for traders and chartists. The US-China trade tensions are behind some of the USD’s weakness but the government shutdown must be damaging the US economy too. It’s certainly damaging the lives of the public sector workers who aren’t getting paid. The forecast for today’s US durable goods and housing data are rather more upbeat though, so don’t be surprised if there is a little USD buying before the close of play.
Rumours of Reserve Bank of Australia rate cut hit AUD
The Pound is back up to levels we haven’t seen since last October against the likes of the Aussie and Kiwi Dollars as well as many other currencies. Rumours that the Reserve Bank of Australia may be planning a rate cut, weakened the Aussie Dollar as you might expect it to. We have certainly seen a lot of clients who had been waiting for better levels starting to cover off parts of their overall requirements. That’s great news.
And, as if to reinforce all the downgraded economic growth rate around the globe, the cost of shipping goods worldwide are falling; a very clear bellwether for economic sentiment. It’s worth noting that, usually, when data starts to slow, investors start buying US Dollars as a safe harbour for their funds during times of troubled water. However, the US v China mud-slinging is steering some investors away from USD and into JPY.
And finally; under the category of ‘you think you’ve got problems’, a family of three was removed from an American Airlines flight from Miami to Detroit because many of the other passengers and some crew members complained about their dreadful body odour and weren’t prepared to spend three hours with the smell. Now that is an awkward conversation. 
Good questions 
  • Why do people say, “heads up” when they really mean ‘duck’?
  • If a French person swears, do they follow it with “pardonnez mon anglais?”
  • Why do English people sing with an American accent?
  • How come ‘Fat Chance’ and ‘Slim Chance’ mean the same?
  • Why do we think pressing the buttons harder will work when the batteries are dying?
  • Why is a boxing ring actually square?
  • Why is the time of day when the traffic is slowest called the ‘rush hour’?
  • If someone with schizophrenia threatens to kill himself, is it a hostage situation?
  • If you decide you are indecisive, then are you really?
  • If you cry underwater, does the water level rise?
  • If you own land, how deep below the surface is your bit?
  • Is it OK NOT to throw your hands in the air because you just don’t care?
  • Why do sandwiches taste better when they are cut into triangles?

Today's Major Economic Releases

Market BST Data/Event Previous Expected
ALL Day Three World Economic Forum Annual Meetings    
GBP 09:30 UK: High Street Lending 39.4k 38.9k
GBP 11:00 UK: Conference Board Index Realized Sales -13 3

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