Traders are not Optimistic About the Pounds Fortunes

3 January, 2019

Rob Bastin

As 2019 gets underway, it would seem traders are not optimistic about the Pound’s fortunes over the coming weeks as Sterling was sold off across the board as soon as the markets re-opened. The drop in rates was despite UK Manufacturing PMI coming in much stronger than expected up to 54.2 from 52.5 the previous month. With exchange rates failing to gain off this good data, this is a clear sign of the market sentiment ahead of a critical few weeks for Brexit. Theresa May is set to put her Brexit deal to the parliament vote week commencing 14th January, with the odds of the deal passing through looking very unlikely.

The biggest drop of the day came against the USD that enjoyed a strong start to the year ahead of Friday’s non-farm payroll figures. Cable dropped 2 cents yesterday in the UK session after peaking at a 1 month high on new years eve. The downward pressure and technical trends remain very much in place for the Pound and therefore any buying opportunities are likely to be few and far between in the next 2 weeks.

Overnight Apple made an official market warning to its investors for its forthcoming profit figures, citing concerns over global growth and Chinese activity as reasons for the losses. The last time Apple did this was in 2007 just before the last global recession. This sparked a risk-averse flash crash in the currency markets with investors selling off riskier currencies and moving into the safe havens of the Japanese Yen and US Dollar. The Aussie dollar was the biggest sell-off in this flash crash and Sterling also suffered as GBP/EUR and GBP/USD both dropped to the lowest levels since 2017. It seems that fears of slowing growth are far wider spread than just the UK’s struggles.

Before the vote on Brexit, we will have plenty of new month data to digest, although market impacts are likely to be more muted in Sterling markets given the focus is elsewhere currently. This morning we have UK Construction PMI at 9:30 am with a small drop to 52.9 forecasted, and this afternoon the first US data of the year is released at 1:15 pm (ADP employment change) and then ISM manufacturing figures at 3 pm. All of this comes ahead of the biggest release of the week, US Non-farm payrolls at 1:30 pm tomorrow.