Currency markets remain range bound

British pound jumpy over Brexit

Currency markets remain range-bound, with volatility being led by sterling as it bounces around on Brexit trade talk developments and rumours. The dollar index was barely changed overnight, rising just 0.19% to 90.96. The US dollar has retreated this morning in Asia though, after the Mnuchin stimulus proposal, the dollar index falling to 90.86. The December low of 90.50 remains the critical support level for the index.

Today, the US dollar has edged lower against the G-10 and Asian regional currencies, reflecting renewed fiscal stimulus hopes. Momentum remains weak though, and the price action points to more consolidation of the recent US dollar gains for the remainder of the week. A breakthrough on Capitol Hill is likely to see the US dollar weaken once again on global recovery/rotation flows. Realistically though, currency markets may well be in a holding pattern until next week’s US FOMC meeting where I expect more easing and possibly some sort of yield curve control pivot. The latter would almost certainly spur more dollar weakness.

The ECB holds its monthly policy meeting on Thursday. I expect interest rates to remain unchanged, but for the ECB to ramp up its monthly bond-buying targets and potentially increase funding via its Pandemic Emergency facility or TLTRO’s. While additional easing could weigh on euro, the currency is more dictated by the US dollar outlook than ECB action itself. The ECB will set the scene for more of the same from the Federal Reserve next week.

With Brexit trade talks coming to a head this week – for the umpteenth time – sterling will continue to trade in a volatile 1.3200 to 1.3500 range. British Prime Minister Johnson is scheduled to hold a meeting with European Commission President Ursula von der Leyen in an attempt to break the logjam. Depending on the Boris-Brussels outcome, GBP/USD could well start with a 1.2 or a 1.4 by this time next week. I will not second-guess the road to that outcome though.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst - Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia and the New York Times. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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