The surge in the dollar has been unstoppable. Despite better than forecast UK data last week the dollar pushed sharply higher supported by solid fundamentals and safe haven flows. Meanwhile Brexit uncertainties are starting to weigh on the pound again. The pound US dollar exchange rate closed the week 0.6% lower at US$1.2971, off the week’s low and 2 month low of US$1.2885.
As the new week begins the dollar is gaining amid lingering Brexit concerns and as coronavirus fear grip the market. GBP/USD is trading -0.2% lower at 06:25 GMT at US$1.2935.
Pound Declines As Brexit Trade Fears Return
The pound slipped versus the dollar last week even as inflation, retail sales and PMI data beat analysts’ forecasts. Analysts pointed towards the return of Brexit trade deal uncertainty as the reason for the sell off in sterling, even as the macro data turned out upbeat numbers. The data shows that the improved political landscape following the UK elections continues to boost the economy. However, investors are increasingly shrugging off the data over concerns that the UK won’t agree a trade deal with the EU.
The UK government signalled that it will publish its mandate for the trade deal later this week. It is expected to re-iterate the UK’s desire for a Canada style agreement, with few tariffs on goods. EU chief negotiator Michel Barnier dismissed the chances of this style of deal. French President Macron expressed his doubts that a deal will be agreed by the end of the transition period at the end of the year. No trade deal means leaving the EU on World Trade Organisation rules, a significant step down from the current arrangement.
Dollar Firm On Safe Haven Flows
The dollar was on the front foot across the previous week, thanks mainly to increased flows into safe haven assets as coronavirus developments dominated. Additionally, the US economy has been primarily safeguarded from the diseases that is raging through China and spreading beyond.
Over the weekend the soaring number of cases will ensure that coronavirus remains a key theme across the coming week. Investors are expected to continue to take a defensive stance as the number of new coronavirus cases outside of China soar. In South Korea the number of cases has increased 20 fold in just 5 days. Italy has also cancelled public events and some businesses have halted operations as the number of confirmed cases hits 152 and the number of deaths 3. The G20 of finance ministers digested a sobering report from the International Monetary Frund (IMF) that coronavirus is expected to shave 0.1% off global growth. This figure could deteriorate if the virus isn’t contained quickly.
