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2020: A new decade dawns 

Ricky Nelson, Head of Corporate Dealing, Halo Financial

The Pound began the New Year under pressure from continued Brexit uncertainty, as markets worry whether UK Prime Minister Boris Johnson can get the UK’s exit deal from the EU over the line by 31st December 2020.  

The UK currency dropped against the US Dollar, despite a spike in December, but greater clarity around Brexit emerged in the days that followed, with other geopolitical tensions particularly surrounding the USA moving the markets in such a way that the Pound has returned to much the same levels as those seen at the end of 2019.

UK economic improvement in early January data releases
The first waves of UK industry data released in 2020 reflected continued uncertainty, with a further contraction in the UK manufacturing sector, as the latest Manufacturing Purchasing Managers’ Index (PMI) showed a fall from 48.9 to 47.5, further away from a 50.0 growth figure on the index.  The UK Service Sector data was more encouraging, however, with the election result providing some sense of direction for the future and boosting confidence across UK business.

Eurozone manufacturing better but Euro not out of the woods
Europe’s manufacturing industry, which has suffered in recent months, saw some signs of recovery in the Eurozone PMI, posting data at 43.7 compared to the previous month’s 43.4, but this small silver lining failed to boost the Euro.

Could the Euro pick up the pieces on employment data?
The Eurozone awaits publication of the November unemployment figures on 9th January.  October’s results showed a healthy drop in unemployment, the lowest on record since the start of the monthly reports in 2000.  This may help balance the disappointing factory orders data that stemmed Euro strength after its brief run of support yesterday.  Any increase in joblessness could further eat into Euro confidence and see the single currency fall and European stocks take a hit.

The direction for the Euro is not certain, as mixed signals have come from the new guard at the European Central Bank (ECB) and much of the single currency’s fate is tied up with its key currency pairs, particularly the US Dollar.   Geopolitical tensions tend to make markets turn to those currencies considered safe havens in times of political pressure, such as the US Dollar, Japanese Yen and Swiss Franc, and Gold as the safest commodity.  However, the US involvement in current geopolitical turbulence is giving investors pause for thought.

New ECB chief, Christine Lagarde, is known for having a more aggressive approach to monetary policy, but the economic situation across the EU and, of course, the impending exit of the UK from the EU, leave little room for a hawkish line of attack. It’s a case of watching and waiting once more.

Disappointing data from China dents Australian Dollar
Disappointing manufacturing data for China had knock-on effects for the Australian Dollar, as the latest Caixin index figures showed a decline to 51.3 from 51.8, leading to a low for the Australian Dollar against its US counterpart.  Australia’s currency is tied closely to China given the two countries’ close trading relationship.

A surprise uplift in Australian housing data could provide a much-needed boost for the Australian economy and its currency in these times of turmoil for the country, as fires continue to lay waste to homes, wildlife and vegetation – our thoughts and wishes go out to everyone affected.

Keep an eye on Dollar direction
There are some key factors that could affect the US Dollar significantly in the weeks to come.  Today’s Crude Oil prices could certainly be one of those currency-moving developments; along with geopolitical tensions between the US and … well … a number of nations; Tweets from Trump; and, bubbling away in the background, US economic data, which has been mixed in recent months.  We get the latest employment data from the USA at the end of this week, which, if it is in line with or above expectations after beating the forecasts noticeably in November, could provide a boost for the USD.


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