Pound under pressure
[vc_row][vc_column][vc_column_text]Increasing evidence of a fourth quarter UK economic slowdown left the pound under pressure, pushing it away from its New Year’s highs.
Although December’s finalised services PMI saw a positive revision from 49.3 to 50.0 this failed to paint an encouraging picture of the economic outlook.
With the service sector ending 2019 in a state of stagnation, gross domestic product appears on track for a similarly underwhelming performance.
While economic anxiety over the prospect of a potential cliff-edge Brexit appeared to ease in December, investors remain wary ahead of the next round of negotiations.
Unless markets see reason to believe that the UK and EU can agree a new trade deal before the end of the truncated transition period support for the pound could falter in the days ahead.
On the other hand, if the latest Halifax house price index and UK labour productivity data surprises to the upside, this could help GBP exchange rates recover some ground.
Higher German inflation shores up euro
As the German consumer price index picked up from 1.1% to 1.5% on the year in December this improved the appeal of the euro, with the chance of future ECB easing appearing to diminish.
Although this figure still falls short of the central bank’s inflation target investors were reassured by the fact that inflation is moving in the right direction.
This helped to limit the negative impact of the finalised Eurozone manufacturing PMIs, even as the German manufacturing sector sank deeper into negative territory.
While the Eurozone’s powerhouse economy looks set to drag on the fourth quarter growth of the wider currency union the detrimental impact on the euro proved limited.
Even so, worries over the economic outlook could pick up again if the latest Eurozone business confidence survey shows a fresh deterioration.
A narrowing of Germany’s November trade balance may also weigh on the single currency, especially in the face of the latest bout of global trade worries.
If the German economy fails to shake off the impact of the slowdown in global trade this could see EUR exchange rates trending lower across the board.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]
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* Information courtesy of Currencies Direct, Philip McHugh
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)
The contents of this report are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. Currencies Direct cannot be held responsible for any loss or damages arising from any action taken following consideration of this information. This article was written by Currencies Direct.
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