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GBP/USD – Pound Rally Fizzles Out, Chinese Yuan Slides

The British pound rallied after the BoE’s decision to maintain interest rates, but the currency is under pressure on Monday. The yuan has lost over 1 percent, as Chinese financial markets have reopened after for the first time in a week.
Kenny Fisher
Asian Stock Market

GBP/USD has started the week with losses. The pair is trading at 1.3144, down 0.44% on the day.

Strong Week for Pound as BoE Stays Pat

Right up to the last minute, it was a toss-up as to whether the Bank of England would lower the benchmark rate to 0.50% or remain on the sidelines. Investors gave a thumbs-up to the pound after the decision to maintain rates at 0.75%, and GBP/USD showed some momentum late the week and briefly pushed across the 1.32 level. Investors chose to ignore the bank’s warning about growth, as the BoE revised lower its growth forecast for 2020 to 0.8%, down from 1.2%. The pound enjoyed its best week since early December, gaining 1 percent.

Technical Analysis

1.3100 has switched to a support role and could be tested if the pound continues to lose ground. Below, there is support at 1.3050. Next, the 50-EMA line is at 1.3029. On the upside, 1.3165 is under pressure, followed by resistance at 1.3200.

GBP/USD Daily Chart

Pacific Currencies – Daily Summary

USD/CNY – Yuan Slides to 7-Week Low

Chinese financial markets were closed last week for the New Year holiday, and investors were bracing for the yuan to slide once the markets reopened. Sure enough, USD/CNY has soared over 1.1% percent on Monday, its sharpest one-day gain since August 2019. Currently, the pair is trading at 7.0144, up 1.14% on the day. The catalyst for the yuan’s slide is the coronavirus outbreak, as some two-thirds of Chinese businesses are shut this week. In economic news, the Caixin Manufacturing PMI dipped to 51.1 in January, down from 51.5 a month earlier. Still, this reading was within expectations.

AUD/USD

AUD/USD plunged 2 percent last week, its worst weekly decline since October 2018. Investor risk appetite has been sapped as the China coronovirus has severely disrupted China’s economy.

Currently, the pair is trading at 0.6705, up 0.27% on the day. On the fundamentals front, the AIG Manufacturing Index fell to 45.4 in January, down from 48.3 a month earlier. This points to continuing contraction in the manufacturing sector. Building Approvals declined by 0.2%, better than the forecast of -5.0%. On Tuesday, the RBA makes its rate announcement, with the benchmark rate expected to remain at 0.75%.

 NZD/USD

NZD/USD is currently trading at 0.6469, down 0.17% on the day. The pair slipped 2.2% last week, as the China virus has scared investors and dampened any appetite for risk assets such as the New Zealand dollar. Later in the day, New Zealand releases Building Consents. On Tuesday, New Zealand releases employment change, which is expected to improve to 0.3% in Q4, up from 0.3% in Q3.

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