Brexit Day here, Pound higher, Buck swinging

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Brexit Day here, Pound higher, Buck swinging

JANUARY 31, 2020

The U.S. Dollar is facing a decline against Euro and Pound while rising against some commodity-based currencies in continuation of shock over the ongoing spread of the coronavirus.

Overview

Unfortunately, we have needed to report growing cases of contagion and deaths, a factor that will keep two thirds of the Chinese economy shut next week. The World Health Organization declared it a “global emergency” and more than just airline companies decided to cancel business activity indefinitely or at least until March. We will need to gauge the economic impact as we thread along since the outbreak news have overshadowed data points, central bank meetings and other risk events.

The greenback has reversed gains experienced early in the week, closing the week even in fluctuation according to the Bloomberg Spot Dollar Index. Mexican Peso and the Oceanic currencies of “Kiwi” NZD as well as “Aussie” AUD suffered over half a percent loss overnight since business flows will be tremendously affected with cancelled flights and shipments. Additionally, a lowered economic growth forecast for China in the first quarter of 2020 is a concern since it believed it could go as low as 4.5% from 6.0% current average. It would represent the biggest drop since the data started being collected in 1992. Mixed signals of doom all around may keep dollar swinging similarly next week.

What to Watch Today…

  • No major events scheduled for today.

Complete Economic Calendar can be found here.

EUR

The Euro may end this week with a bump to its overall value even as economic indicators earlier disappointed. The aggregate for the Euro-zone’s Gross Domestic Product in Q4 came in at an awfully low 0.1% pace, just below the expected 0.2% figure. January’s Consumer Price Index figures contracted as forecast, but deeper than expected at (-1.0%) instead of (-0.9%).

It is possible to take these numbers and think this is a bottom and there is only room to improve, but deflationary pressures are sure to be a major point of focus of discussion between ECB officials. It is clear that the intended effect of QE to lift prices is one of many to be under scrutiny under Christine Lagarde’s new command.

GBP

The Pound rose as Brexit Day has arrived. None of the possible ways to prevent this separation from happening that we imagined ever materialized and Boris Johnson’s mandate means the end of another referendum being brought to the people. The 2016 vote’s result was never delegitimized, and the government is now responsible for accommodating a new trading partnership with the rest of the continent.

The rise in Pound is due to optimism that the transition period will not be turbulent, but we believe it will be. If enough pressure is bestowed upon Johnson later in the year because of no smooth Brexit as negotiations struggle, there could be a higher chance for delaying the deadline beyond December 31st.

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