Happy New Year!
We wish you all a very healthy and prosperous 2020!
Last year was very unsettled in the currency markets and this year promises to be similar.
Sterling was sold off into the Christmas break as traders took profits on the previous General Election bounce. It staged a recovery into the new year, however, as investors reversed these profit-taking trades and recalibrated their positions with the knowledge that a hard Brexit will be avoided at the end of this month.
Brexit is likely to dominate volatility in the Pound again this year. Traders will be closely watching how trade negotiations are going over the coming months to ascertain whether or not a full agreement can be reached before the end of the transition period (31st Dec). Boris has firmed up this strict deadline by putting it into law that no extensions will be made. If no extensions are requested before July or if no agreements can be made by the end of the year, then the UK risks leaving on WTO terms (aka hard Brexit). If the risks of a cliff-edge Brexit re-appear then Sterling will come under serious pressure again. If negotiations progress well, however, then we can expect good ground to be made by the Pound. Either way, it’s likely to remain extremely volatile as the news flows back and forth.
In other news, the Euro had a relatively strong finish to the year. It looks likely the ECB will hold fire on any extra monetary stimulus for the foreseeable, as European data should show signs of improvement this year. Additionally, further support has come as the first phase of a US-China trade resolution looks to be nearly sorted which is a good sign for a full agreement being on the cards in the coming months. This helps boost general risk appetite and global growth which would bode well for both the Euro and the Pound, but likely weaken the more traditional safe-haven currencies (e.g. USD/Yen/CHF).
Finally, alongside the key US-China trade dispute, US dollar traders will be closely tracking developments across the Pond as Mr Trump tries to win another term as President on 3rd November. Since his inauguration, Trump’s protectionist policies have had major impacts on the global economy and currency markets.
As a result, the Pound trades around the highest levels it’s been for the past couple of weeks but still off its election highs. The EUR/USD hit its highest levels since August last year having gained 2-cents last month.