Investors continued to focus on a UK-EU trade deal, with markets pricing in a higher chance of the UK failing to reach an agreement with the European Union. As there was no news to drive Sterling this morning, the British currency took its cue from broader market trends. Commenting on this, MUFG currency analyst, Lee Hardman stated: “In the UK, recent data points to a pickup in growth which is good for the pound but that is being set of by concern over a trade deal.”
However, this afternoon the dollar began to ease, sliding against Sterling despite data painting a picture of a resilient US economy.
MUFG’s Mr Hardman noted: “The relative attractiveness of the U.S. dollar has been boosted in the near-term by building concerns over the outlook for growth outside of the US, the rising probability of President [Donald] Trump winning a second term and further evidence of the ongoing resilience of the US economy.
“However, the Fed’s reluctance to tighten policy should help to dampen upside potential for US yields and the US dollar.”
USD eased this afternoon as risk appetite amongst traders increased as reports suggested the spread of the virus is likely slowing down, weighing on the safe-haven dollar.
However, White House trade advisor Peter Navarro said it was too early to know the kind of impact the Wuhan coronavirus will have on the country’s economy.
Speaking on Monday, Mr Navarro said: “I think we are going to have to wait another couple of weeks or a month to see just what exactly is going on.
“There are also companies that are going back to work in China as we speak. We won’t know for a couple of weeks now whether the virus is going to peak or whether it’s going to spread.”
Looking ahead, the pound could reverse today’s gains following the release of tomorrow’s flash UK GDP data.
Sterling could slide if Q4 growth disappoints.