- GBP is slipping lower vs USD
- GBP/USD – Pound higher last week after Boris Johnson’s cabinet reshuffle
- GBP gains are likely to be capped
GBP/USD climbed last week, trading a 200 point range from US$1.2870, the lowest level since November, to a high of US$1.3065. The pickup in GBP/USD came following a UK cabinet reshuffle and a sense of calming from all sides surrounding the coronavirus outbreak.
The pound is slipping lower versus the US dollar as trading in the new week begins.
GBP/USD – Pound was able to overcome Brexit concerns
The pound charge higher across the previous week after Boris Johnson’s cabinet reshuffle. The pound surged following Sajid Javid’s surprise resignation and his subsequent replacement by Rishi Sunak. The move has been interpreted by market participants as a power grab over the Treasury by No. 10 Downing Street, making an expansionary fiscal policy much more likely. This is especially important given that the Budge is due next month. In ordinary times fiscal imprudence would be punished by the markets, but in the face of Brexit this hasn’t been the case.
Whilst domestic politics boosted the pound, gains are likely to be capped as the European Union have indicated a tougher stance to post Brexit trade negotiation. The complex talks are due to start next month.
After a quiet week on the economic calendar last week things are due to pick up this week with UK labor market and wage data due on Tuesday, followed by inflation figures on Wednesday and PMI readings later in the week.
US Dollar traded broadly flat across the previous week amid mixed economic data
The dollar trade broadly flat versus its peers across the previous week amid mixed economic data. Whilst consumer confidence and inflation were upbeat, the control group in retail sales and industrial production fell short of expectations.
There is no major economic data due from the US in the coming week, other than the minutes from the January Federal Reserve monetary policy meeting. The Fed’s stance on monetary stance is that it is appropriate at its current level. The Fed’s stance has been reaffirmed multiple times in recent weeks, therefore no surprises are expected from the minutes.
News on covid-19 outbreak is expected to continue dominating over the coming week as investors attempt top gauge whether it is being contained or not and its likely economic impact. Cases spiked last week after Chinese authorities changed the methodology.