Sterling Corrects as data disappoints
March 29thth: Highlights
- Retail sales fall as cold weather disrupts shoppers
- Dollar rallies on strong GDP
- ECB finds Eur 10 bio “hole” in bad loan provisions.
Pound to set medium term high
As the market winds down for the Easter weekend, there are two significant events which will bring added volatility particularly if the level of liquidity falls.
The first is the publication of GDP data for Q4 which carries a downside risk for the pound. Analysts expect the data to be unchanged at 1.4% but any significant deterioration will call into question the markets hopes for a rate hike in May and see the pound break support at 1.4060 which has, so far, held firm.
The second event is the possible announcement of a plan from the UK Government to solve the issue over the Irish border following Brexit. This rumour has been circulating for a couple of days and it is likely that there are discussions taking place with the DUP to ensure that there is no repeat of the previous confusion.
The pound fell to a low of 1.4070 yesterday and has remained close to that level overnight. Versus the Euro it traded in a narrow 1.1400/1.1450 range.
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U.S. GDP stronger than expected
Lingering concerns over a prolonged trade war will “keep a lid” on the dollar, certainly until the release of the March employment report on April 6th.
With North Korean Leader Kim Jong-un having visited Beijing this week being a sign of the possible denuclearisation of the Korean peninsula, risk appetite should improve which may give a further positive boost to the dollar.
ECB finds a hole in bad debt provisions.
The single currency fell yesterday but remains above strong support at 1.2260. The most significant driver for the euro is monetary policy and the consideration of when the first rate hike will take place as a step towards normalization of monetary policy, although as with so many issues in the Eurozone economy, it is difficult, yet, to decide just what constitutes normal.
It is more likely that the region faces a continued low inflation, which is one of the reasons for the possibility of further Asset Purchases before the scheme starts to be unwound.
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About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”