The British pound grew steadily during this week, adding 2% against the dollar. An unexpectedly strong wages report was supported in the following days with positive buzz around Brexit. First, we received reports of a possible postponement of the Brexit date in order to avoid “exit without deal”. On Friday, there was news of support for Theresa May’s plan by the Northern Irish political party.
The British currency growth is particularly noticeable against the {{1|euro}}, as the eurozone economy, on the contrary, saw weak economic data this week: at the beginning of the week the IMF sharply reduced its growth forecasts for the eurozone countries in 2019, and on Thursday EUR was under pressure due to disappointing PMI estimates. On Friday, Ifo data also highlighted slowing. Their Business Climate indicator fell to almost 3 years lows.
The ECB added fuel to the fire, stressing that external risks from China to Brexit could undermine the region’s economic growth even more. ECB officials say in their speeches that in 2019 the rate hike may not happen, and that the recent decline of oil will put pressure on inflation in the coming months.
The currency market dynamics was decisive for the stock markets in the second half of the week. The weakening of the single currency against the dollar and pound supported the growth of stocks in the region. The German DAX added 2.6% from Wednesday lows, while the British FTSE100 fell by 2.5% at the beginning of the week and could not turn to growth due to the strengthening of the pound.
Next week's news from the US will be in the spotlight of the markets. On Wednesday, the Fed will announce its decision on the rate and hold a press conference; labour market indicators will be published on Friday. Many releases on the US economy are postponed because of the shutdown, so the remaining publications can cause a stronger than usual market response. The main EUR/USD struggle will be concentrated around the level of 1.13, and in GBPUSD - around 1.30.
Alexander Kuptsikevich, the FxPro analyst