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Rates on hold, focus turns to Brexit

Rates on hold, focus turns to Brexit

The Pound gained some ground last week when the Bank of England (BoE) chose to keep interest rates on hold. The Monetary Policy Committee voted 7-2 to keep rates at 0.75%, and the Pound hit interbank highs of 1.3110 against the US Dollar later in the session as a result. The GBP/USD exchange rate moved above 1.32 on Friday, but has begun this week under pressure. Britain officially left the EU after almost 50 years of membership on Friday evening, and today Prime Minister Boris Johnson will announce the government's approach to negotiations and life for the UK after Brexit. Meanwhile, the EU will do the same, with Michel Barnier due to unveil plans for the EU's future. The Sterling selloff has seen the GBP/USD exchange rate trade around 1.10% softer, while the GBP/EUR currency pair is residing around 0.70% lower. Manufacturing data has printed positively this morning, coming out of contraction to reach neutral territory. This week, UK construction and services data will also reach markets.

Euro growth falters

The Euro came under pressure against both the Pound and the US Dollar last week after several disappointing data releases. Ecostats showed minimal growth at the end of 2019, with both France and Italy registering contractions, causing Eurozone expansion to hit its weakest level in nearly seven years. There's a host of data out this week from Italy, Germany, and Spain, as well as Eurozone Retail Sales and service sector data. There are some other influential events scheduled which could also impact the Euro this week, such as speeches by newly appointed European Central Bank Chief, Christine Lagarde, and EU economic forecasts. 

US manufacturing slows, employment data ahead

Lacklustre US data put some pressure on the Stateside currency last week. Friday saw the Chicago Purchasing Managers' Index—which details levels of manufacturing in some of the major states—hit its lowest level since 2015. According to ISM data, manufacturing in the US has contracted for five consecutive months—something that's added fuel to global slowdown concerns. This week could be an interesting one for the US Dollar exchange rate, with the upcoming labour market data releases. The US Non-Farm Payrolls report, due out on Friday, is often a significant source of influence for USD movement. Market risk sentiment could be another thing to determine the Dollar's value, with the spread of the Coronavirus taking its toll on appetites and building concerns over the impact on global growth. 

Aussie registers biggest monthly loss since 2016 

Down Under, both the Australian and New Zealand Dollars felt pressure last week, with the Aussie recording its most significant monthly loss versus the US Dollar since May 2016. The Australian Dollar has been weaker on market risk sentiment, as well as concerns about the effect recent bushfires could have on tourism and the economy. The Aussie Dollar's decline against the Kiwi is in the region of around 5.0%, a far cry from the year-high it reached in late 2019. Some have suggested any cuts by the Reserve Bank of Australia this year could help the New Zealand Dollar get closer to parity with the Aussie. 

This week, attention will be on the Reserve Bank of Australia, which will announce its latest interest rate decision on Tuesday, followed by a speech by Governor Philip Lowe on Wednesday. Rowe will also give his semi-annual testimony to the Parliament Committee on Thursday, before the RBA's monetary policy statement on Friday. A lot of market focus will be on statements regarding bushfires and the Coronavirus and how they could impact the economy—any dovish comments could pressure the Aussie lower. Meanwhile, New Zealand will release its latest labour market stats in Wednesday's Trans-Tasman session, followed by inflation data on Friday—both of which are highly influential and could create NZD movement. If unemployment data prints positively as expected, it could ease speculation the Reserve Bank of New Zealand may need to cut rates in the near future, and bolster the Kiwi Dollar higher against its Aussie counterpart. 

Canadian growth ticks higher

The Canadian Dollar hit seven-week lows versus the US Dollar on Friday as market fears over the Coronavirus spread. However, the Canadian currency was able to claw back some losses following domestic data showing Canadian growth had taken an upswing in November. Gross Domestic Product growth entered expansion territory at 0.1%, rather than coming in flat at 0.0% as forecasts had expected following the previous month's -0.1% contraction. This week, more important data will be in the spotlight, including Canadian manufacturing stats released today, and labour market data on Friday. Market risk sentiment and oil prices could also influence the CAD exchange rate.