Today's news headlines:
- ‘UK set to approve limited 5G role for Huawei’ – Boris Johnson is expected to approve a restricted role for Huawei in the UK’s 5G network by imposing a cap on the market share the Chinese company can take. The UK government has come under pressure from the US to ban the Chinese telecoms company altogether, due to security risks regarding international intelligence sharing. (Financial Times)
- ‘China deaths jump as measures fail to slow spread of virus’ – China’s government has extended Lunar New Year celebrations to increase efforts to contain the spread of the coronavirus. The government reported over the weekend that the spread of the virus has accelerated around the globe and that the disease may not show symptoms for up to two weeks, raising fear that it may be harder to contain than initially thought. (Bloomberg)
Despite some signs that global economy might be turning a corner, this Monday has started on uncertain footing, after China extended its Lunar New Year’s holiday to combat the outbreak of the Coronavirus. Bloomberg has reported that the US, France and Japan will be repatriating their nationals from the affected region, raising concerns that this may only get worse in the days to come. Today is also a relatively quiet day on the data front; German IFO Business Climate reading has come out below expectations and, as expected, has been largely ignored by markets.
Bottom Line: The Dollar has been appreciating over the past several days in response to the Coronavirus headlines coming out of China. This suggests that recent positive economic data has been largely ignored and will probably continue to be, until the virus story plateaus or the risk of spread decreases. We’re expecting some important releases from the US economy tomorrow and Wednesday, culminating in the FOMC press conference, but that may also go under the radar at this rate.
Cable fell from highs of 1.3173 on Friday, but still managed to close the week in the green as markets reduced expectations of a Bank of England (BoE) interest rate cut this Thursday. On London open this morning, the pair ticked higher after finding support at the 50-daily moving average around 1.3050 in the overnight session. A light day of UK and US data today may create quieter conditions, as markets await Thursday’s key interest rate decision from the BoE.
The currency-cross climbed nearly 2% last week from a continued weakening of the Euro and Sterling strength. The pair reached highs of 1.1918 – the highest level since the UK general election last month - before reversing gains on Friday afternoon. On a trade-weighted basis, the Euro index trades at two-and-a-half year lows. This morning’s German IFO economic sentiment surveys, which came in worse than expected, are unlikely to boost the currency in the short run.
The common currency closed last week below the 1.11 level, after several attempts to break above the big figure earlier in the week. On a trade-weighted basis, the US Dollar continues its January recovery as safe-haven assets start the week strong, while the Euro index drifts deeper into two-and-a-half year lows. This morning’s poor German IFO economic sentiment surveys start the week on a bad note for the Euro, which ticks closer to the 1.10 figure against the Dollar this morning.