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The tone of communication

​​​​​​Today's news headlines:

  • ‘Trump lawyers claim President cannot be removed for abusing power’ – A day before the start of his Senate impeachment trial, the US President’s lawyers have said allegations of abuse do not support his proposed removal from office. His legal team argue that no violations of law have been cited, and therefore the President cannot be accused of any impeachable offence. It’s likely that Trump’s lawyers will not seek to challenge any of the facts of the case, instead turning their strategy to what are legitimate Presidential powers, and will argue that pressuring foreign governments falls into that bracket. (Financial Times)
  • ‘UK to ensure no Brexit cliff-edge for carmakers, Minister says’ – One of Britain’s business ministers, Nadhim Zahawi, has sought to reassure carmakers, including Jaguar, Land Rover and Nissan, that the UK will be able to broker a deal with the EU that ensures no new tariffs or quotas on car parts. This should be in place by the end of the Brexit transition period in 11 months’ time, to avoid any disruption to supply chains. Chancellor of the Exchequer, Sajid Javid, has warned business leaders that they will need to adjust to post-Brexit rules, but Zahawi indicated that the UK is unlikely to diverge too significantly from EU regulations. (Bloomberg)

Brightening horizon

This morning, Emmanuel Macron and Donald Trump both confirmed that they have agreed to refrain from punitive tariffs in response to the growing trade dispute. While Boeing and Airbus government subsidies have been a point of argument between the US and EU for some time, the recent taxation of digital firms (Amazon, Google, Apple, etc) have only increased the tension. Under this new agreement, the OECD will come up with a taxation standard for digital firms, which is likely to be more palatable to a US audience than a unilateral EU response. The tone of the communication is also important. The message from the French President was far more enthusiastic than Donald Trump’s tweet on the matter, who confirmed the agreement in very muted terms. This suggests it is not the end of the story, but in the meantime, it is good to see another sign of easing tensions.

Bottom Line: Another positive sign also came out last night when the Bank of Japan revised their 2019 and 2020 growth forecasts. Though no one really expects their policy to change as a consequence, it is one of several subtle signs that global growth has bottomed. A few minutes ago, the UK also released upbeat Average Earning Index and Claimant Count Change, quieting worries of a wholesale consumer downturn.


With little data to move the market, Sterling traded in a tight range against the Greenback throughout yesterday’s session, ebbing below 1.30 in the morning before posting a recovery in the afternoon. Today’s UK jobs data is likely to give the Bank of England food for thought before their upcoming meeting next week. Any break above the 50-day moving average, currently around the 1.3040 level, would be a significant bullish indicator for further Pound gains.


The current low volatility environment and a lack of data releases meant that the Euro’s trade weighted index was pretty much flat throughout yesterday’s session. For the currency pair, there was some support around 1.17, after a failure to break meaningfully below this mark.


Yesterday was a relatively directionless day for the EUR/USD pair, with the Euro finding resistance at the 50-day moving average. Looking ahead, markets will hope that today’s German ZEW economic sentiment survey for January will provide some meaningful price action.