- The EUR/GBP receives support before the PMI readings of the Eurozone, Germany and the United Kingdom.
- The euro can face challenges as operators expect the ECB to implement a series of feat cuts.
- Libra sterling could face challenges in the midst of the latest softer economic data in the United Kingdom.
The EUR/GBP is recovered after registering losses in the previous session, quoting around 0.8440 during the first European hours on Friday. The EUR/GBP crossing wins traction before the January preliminary readings of the HCOB Purchase Manager Index (PMI) of the Eurozone and Germany. The operators are also pending the publication of the preliminary data of the Global S&P PMI of the United Kingdom.
The euro is strengthened in front of its peers, supported by the improvement of risk appetite after the recent comments of the US president, Donald Trump. Trump requested an immediate reduction of interest rates on the part of the US Federal Reserve, citing the fall in oil prices as a reason. “With oil prices going down, I will demand that interest rates fall immediately, and in the same way, they should be down around the world,” Trump said during the World Economic Forum in Davos, Switzerland.
However, the euro rise could be limited since the markets expect the European Central Bank (ECB) to implement a series of rates cuts, with a reduction of 25 basic points in advance in each of the next four policy meetings. These expectations are fed by concerns about the economic perspectives of the Eurozone and moderate inflationary pressures.
Meanwhile, the sterling pound (GBP) faces challenges after the disappointing data of the United Kingdom, including hostage retalial inflation and sales of the expected of what was expected, a decline labor demand until November and a slow GDP growth.
The softest economic reports in the United Kingdom (UK) have strengthened the expectations of a 25 basic points rates by the Bank of England (BOE) in February, with the markets now valuing an almost safe reduction in the policy rate from BOE to 4.5% at your next meeting. As a result, the bullish potential for the British pound can remain limited in the short term.
US interest rates
Financial institutions charge interest rates on loans to borrowers and pay them as interest to savers and depositors. They influence the basic types of interest, which are set by central banks based on the evolution of the economy. Normally, central banks have the mandate to guarantee the stability of prices, which in most cases means setting as an objective an underlying inflation rate around 2%.
If inflation falls below the objective, the Central Bank can cut the basic types of interest, in order to stimulate credit and boost the economy. If inflation increases substantially above 2%, the Central Bank usually rises the interest rates of basic loans to try to reduce inflation.
In general, higher interest rates contribute to reinforce the currency of a country, since they make it a more attractive place for world investors to park their money.
The highest interest rates influence the price of gold because they increase the opportunity cost of maintaining gold instead of investing in an asset that accrues interest or depositing effective in the bank.
If interest rates are high, the price of the US dollar (USD) usually rises and, as gold quotes in dollars, the price of low gold.
The federal funds rate is the type to a day that US banks lend each other. It is the official interest rate that the Federal Reserve usually sets at its FOMC meetings. It is set at a fork, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the aforementioned figure.
Market expectations on the interest rate of the Federal Reserve funds are followed by the Fedwatch of the CME tool, which determines the behavior of many financial markets in the forecast of future monetary policy decisions of the Federal Reserve.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
