Today is Thanksgiving Day stateside, so markets there will be closed later and so expect a quiet afternoon session and lower trading volumes into tomorrow too. As we flagged yesterday, last night we saw the release of the minutes from the Federal Reserve meeting earlier this month. These minutes were more closely watched than normal ahead of a potential rate hike at next month’s meeting. Overall Fed officials see an interest-rate increase in the near term even as tepid inflation drove divisions over the policy path and as financial stability concerns cropped up. According to minutes from the October 31st-November 1st meeting, “many participants thought that another increase in the target range for the federal funds rate was likely to be warranted in the near term if incoming information left the medium-term outlook broadly unchanged,”. Whilst December’s rate is looking more and more likely, it is the future path that has been slightly questioned. Officials have been projecting three rate increases in 2018, but that outlook could be called into question if economic data fail to meet Fed expectations. Analysts are watching closely for any signal that central-bank officials will mark down their outlooks when they submit economic projections at their Dec. 12-13 meeting.
The net impact on the dollar last night was on the negative side with the main currency pairs breaking out of recent short term tight ranges albeit still within the overall recent well flagged key levels. For example, EURUSD broke above 1.18 and continued moving higher in early morning trading, and has been further supported since by very strong Eurozone PMI data with the overall Composite showing 57.5 versus 55.9 expected and above last month’s 56.0 outcome – significantly above the 50 expansion/contraction turning point. GBPUSD also pressed higher, however, it has since run of steam at the key resistance of 1.3325/35 we flagged. A breach of this and we would be looking back towards the 1.3500 area.
We have been weary of the UK economy in recent months, highlighting the hardship that the consumer has faced. Inflation and wage growth have been pulled in opposite directions, and we’re starting to see this weigh on recent economic figures. This morning we had UK GDP data, the headline Q3 figure came in as expected, meaning the economy is on course to expand by around 1.5% this year, a slower pace of growth than that seen in recent years. This in contrast, to the Eurozone, where the 19 member union are on track to grow at its fastest rate in a decade, with a forecast of over 2 percent growth.
This morning’s figure also showed that UK business investment grew by only by 0.2% in the last quarter, down from 0.5% in Q2. This is something we have been hearing from clients throughout the year, as the uncertainty around life after Brexit continues to cast a shadow over Britain’s economy. The longer the negotiations continue to drag on, the worst it will be for the UK you feel.