FX Markets in Review
The most important and most commonly used currencies in international financial operations are the US Dollar (USD), the single European currency Euro (EUR) and the Pound Sterling (GBP). These currencies are traded on all major FX exchanges and are traded as pairs: EUR/USD, GBP/USD and EUR/GBP.
The first pair, EUR/USD, is the most popular currency pair in the world, reflecting the relative strength and security of the two largest global economies. Major factors that influence the EUR/USD pair are the key interest rates set by the European Central Bank (ECB) and the US Federal Reserve (Fed). Other key economic indicators (e.g. unemployment, economic growth and trade balance) can have major impact on EUR/USD trading, especially if the announcements diverge from economists’ expectations.
(Source: AlphaTerminal, 26.04.2018, EUR/USD, 1 Year, Daily Chart)
While this pair has seen significant volatility through the years, especially in the aftermath 2010-2012 European Sovereign Debt Crisis, in recent times EUR/USD has been steadily strengthening. The first quarter (Q1) of 2018 has seen the EUR/USD pair trade in a relatively stable horizontal channel, starting the year at the low of 1.191, but then finding support around 1.219 and trading as high as 1.255 in the middle of February. EUR/USD is currently trading at 1.223 and once again testing the lower bound of horizontal channel.
The state of the GBP/USD pair is often taken as a barometer of the UK economy and the markets’ confidence in the overall state of British political system. Pound Sterling has been making a slow, but steady recovery since the shock of the Brexit referendum and the first few months of 2018 have seen GBP strengthening against the US Dollar. The total amount of Pounds Sterling held by foreign countries as their currency reserves has been steadily growing since the beginning of 2017, reflecting global demand for GBP.
That positive dynamic has been, however, interrupted in the middle of April 2018, when a series of negative economic results (including slower than expected wage growth and lower than expected inflation) sent Pound Sterling versus the US Dollar, further exacerbated by the news that the Bank of England, a key financial regulator, might be hesitant to raise interest rates during its May 2018 meeting. So far in 2018, GBP/USD pair has traded as high as 1.437 (in mid-April) and as low as 1.345 (early January).
(Source: AlphaTerminal, 26.04.2018, GBP/USD, 1 Year, Daily Chart)
A close “relative” to the GBP/USD pair is the EUR/GBP pair, which is often seen in the post-Brexit environment as a bellwether of economic and political relations between United Kingdom and the Eurozone. While similar economic factors influence relative strengths of the Euro and Pound Sterling as with GBP/USD, in recent months trading in EUR/GBP often reflected the state of Brexit negotiations.
These negotiations have continued apace and FX traders are expressing confidence that major issues related to unwinding the common market, national borders and citizen rights will be successfully resolved. In 2018, EUR/GBP pair has stayed in a narrow trading range, with highs of 0.896 in the middle of March and lows of 0.862 in the middle of April.
(Source: AlphaTerminal, 26.04.2018, EUR/GBP, 1 Year, Daily Chart)
