Overnight, the People’s Bank of China announced further monetary policy easing to cushion the Chinese economy from the ongoing battle to contain Coronavirus. Naturally, headlines are still focusing on the spread of the virus both inside China and signs that the virus is gaining a foothold around the globe. The safe-haven Greenback has been gaining for three consecutive sessions, as global manufacturers with Chinese operations begin to announce the scope of the disruption to business and anticipated earnings impacts.
This morning, UK Retail Sales will be a crucial release given the constellation of poor business data points this year. It’s broadly accepted that the consumer will need to continue to prop up the UK economy, while PM Johnson tries to bridge the gap in the ever widening gulph between his and the EU’s negotiation position. This afternoon, European Central Bank meeting minutes will be released from their January policy decision, which will hopefully provide some context to the seemingly precipitous decline in the German economic fundamentals. Tomorrow, EU Purchasing Manager Index survey data releases will be even more important to gauging the future direction of the bloc since they are forward looking in nature.
Bottom line: In light of the increased earnings report scrutiny over the Coronavirus we would expect the broadly risk off tone to persist. This feeds into expectations for further central bank easing, the current US dominant paradigm is likely to become more entrenched. The trade-weighted US Dollar index is at the top of a one and half year trading range and only 4% off the all-time high.
Sterling remains under selling pressure this morning after sustained losses against the Greenback during the latter part of yesterday’s European session. The Pound traded either side of the 1.30 interbank level, as better than expected UK inflation data gave way to broad-based US Dollar strength and concerns over the UK’s trade negotiating position with the EU. Sterling’s fall through 1.29 this morning might give way to further losses as the day progresses.
The currency pair has now lost over 1% of its value since Tuesday’s high of 1.2074 as markets remain cautious on the Pound, despite a solid run of data. For the most part, this is due to increased concern over UK politics and the realistic chance of no trade deal with the EU by the end of the year. Business sentiment in the form of tomorrow’s PMI releases now become a more important determinant of the Pound’s near-term valuation.
The Euro fell back below the 1.08 interbank level against the Dollar this morning amid positive US economic data and continued concern over the Coronavirus. Minutes from the Federal Reserve’s latest meeting echoed previous comments that the US economy is in good health and this has increased the safe-haven appeal of the Dollar over the Japanese Yen.