GBP retains its strength

On a day with no discernible data released, Sterling witnessed mixed trading yesterday ahead of this morning’s influential current account and final GDP q/q figures. Sterling dropped to a two-week low versus the US dollar before rebounding to the opening price, however it remains under longer term pressure as the greenbackcontinues to outperform across the board amid prospects of the FED tightening monetary policy. The main factor helping Sterling at the moment is Governor Mark Carney’s consistent tone suggesting that the point at which interest rates can be increased is drawing near. This leaves Sterling well positioned against currencies such as the Euro.This week’s PMI figures may be pinnacle in determining whether the current course the UK economy is following is on track for the BoE to consider raising rates as early as February.

The US dollar continued to edge higher yesterday amid the current global uncertainty and geopolitical unrest, leading to further safe haven flows to the benefit of the greenback. The US Dollar strength can also be attributed to further positive fundamental economic data stateside, which is once again fuelling speculation the FED could raise interest rates sooner rather than later. Alongside the current unrest in the Middle East and Ukraine, turmoil in Hong Kong is also coming to the forefront, with huge pro-democracy demonstrations currently taking place across the nation. This has lead investors to once again seek the safety of the US Dollar. The greenback offers stability in times of global instability, and with the US economic picture improving it offers the hope of higher yields as the FED gears up to raise interest rates.

The euro lost further ground yesterday ahead of pinnacle Eurozone inflation data released today. Policy makers have already pledged their commitment to do whatever it takes to stimulate growth in the region with additional economic stimulus and other tools at the ECB’s disposal, and the inflation data could finally prompt the ECB to show their cards.The Euro is hovering at lows not seen for some time, and market participants are currently contemplating the potential measures Eurozone policy makers may adopt to kick-start the economy. The current struggles are in stark contrast to economics such as in the UK and US, which are both expected to raise rates in the near future.As a final note, the recent outburstof unrest in Hong Kong may offer some support for the commodity linked currencies. Generally periods of political turmoil can be accompanied by safe-haven demand for alternative assets including gold. However, such fear-driven positioning seldom delivers a lasting source of support and the moves could prove as temporary as the protests.