Risk currencies in favour as US earnings impress

Today's news headlines:​​​​​​

  • 'Yen near this year's lows, Franc soft on rising risk appetite’. An upbeat start to US earnings season is depressing safe-haven currencies in favour of riskier assets, which is lending a degree of support to EUR/USD. (Reuters)
  • 'UK productivity warning rings alarm bells’. Lacklustre UK productivity has been sluggish for the last decade, with a lack of investment due to Brexit taking an additional toll. This is likely to keep the Pound under pressure. (Financial Times)

Euro rallies

The US Q1 earnings season had been expected to disappoint, but corporate America continues to avoid any sign of the slowdown that is hitting at least some corners of the nation’s underlying economy. The earlier concern had been driving safe-haven currency flows, with cautious investors favouring the Japanese Yen and Swiss Franc as a result. However, the upbeat start from just a handful of companies has been sufficient to drive demand for ‘riskier’ assets. Sterling has been largely immune, but further upbeat US earnings news has the potential to see the Euro extend its recent gains.

UK productivity

Sluggish domestic productivity remains a recurring theme in the UK. The Conference Board, a US non-profit research group, noted that the UK is the only large advanced economy which is likely to see productivity fall this year. Brexit uncertainty is hampering investment in the UK and, and the longer this theme continues, the worse the damage. Data points like this demonstrate the need for a resolution to the Brexit saga. This report implies that the damage is more than merely superficial, so a Brexit deal won’t necessarily result in a quick improvement in UK fortunes.

GBP/USD

The Pound is finding itself under some pressure against the US Dollar in early trade. The weekend media reported on the damaged state of the Conservative Party, citing an inability to resolve Brexit, and suggested that a socialist rather than a Labour government could be next in power. Brexit uncertainty is set to remain a drag on Sterling for some time yet.

EUR/USD

The Euro is finding some support against the US Dollar as a result of renewed appetite for risk currencies. With little in the way of economic data due from the Eurozone today, the common currency may be able to extend this run of support, at least in the near-term.

GBP/EUR

The Euro has jumped against the Pound in early trade as demand for risk currencies plays out. Unless there are some meaningful developments in terms of Brexit, last week’s weakness could be extended, with lows from late March now very much in sight.