GBP/USD Hits Two Week High
- Jan 22
- 2 min read
Updated: Feb 10
GBP : Sterling gaining on it's peers
Yesterday, sterling outperformed its main peers as market sentiment shifted in favor of riskier currencies due to uncertainty surrounding Trump's tariff proposals. The Bank of England (BoE) is almost set to lower interest rates by 25 basis points (bps) to 4.5% at the policy meeting in February, so its future is still unclear. Despite a minor decline versus the US dollar in the morning London session, the pound managed to hang onto Tuesday's gains above the crucial support level of $1.2300. The GBP/EUR exchange rate is still range bound and fluctuates between €1.1800 and €1.1850.
EUR : $1.0500 would be a stretch
A drop in the dollar provided support for EUR/USD for the second day in a row, although it was unable to break through the $1.0440 mark. To bring the pair back to the $1.0450–$1.0500 range, which would reduce the gap with its short-term fair value, there still appears to be some resistance. Actually, at $1.0500, the majority of the Trump tariff risk on the Eurozone would be effectively priced out. That's probably too soon.
Speaking in Davos on domestic Eurozone news are President Christine Lagarde, Francois Villeroy, Klaas Knot, and Olli Rehn, among other officials of the European Central Bank. Joachim Nagel, the governor of the Bundesbank, said yesterday that the ECB should lower interest rates by 25 basis points next week and reaffirmed the generally held belief that further rate cuts may be forthcoming. His reputation as one of the most hawkish members of the Governing Council was another indication that the dovish front had no more opponents.
USD : Dollar drops off, corporate tax the topic
The threat of changing tax laws for large corporations overshadowed Trump's second day in office. The president is directing the US Treasury to look at unfair taxes on US people or firms as part of a memo that was first released on Monday. The United States is proposing double taxation on certain foreign individuals and firms that have been founded in the United States, in addition to the potential of withdrawing from the OECD agreement on a minimal corporation tax.
Following Monday's warning to apply 25% tariffs, Canada and Mexico have continued to be the focus of attention on the hot tariff debate. CAD and MXN are currently trading about 1% stronger than they were on Friday following yet another round of dollar depreciation in yesterday's US session. It appears that markets are still hesitant to factor in the full impact of tariffs and may still be holding out hope that tariffs would be further postponed in exchange for some migration cooperation. Although outgoing Prime Minister Justin Trudeau has emphasized that avoiding tariffs is the top priority, Canada has promised to retaliate for the time being. There are still significant downside possibilities for both CAD and MXN.
