Friday started on a strong note with hope Brexit negotiations could focus on trade talks once an agreement had been made on the Irish boarder and EU citizens’ rights within the UK. Sterling surged higher with GBPEUR hitting over 6 month highs trading back above 1.1500 (EURGBP Lows at .8689), while GBPUSD traded near 2 month highs before quickly reversing fortunes on the back of a far stronger jobs print in the US. A stronger than expected NFP reading helped boost the greenback through the beginning of the US session, the headline figure was at 228k vs 190k expected, the unemployment rate was as expected at 4.1% however slightly weaker wage growth took the shine off and by the end of the day the USD index had closed flat. That really was the type of day we experienced on Friday, major FX pairs whipsawed around headlines in wide ranges before more or less closing the day where the opened. Over the weekend some headlines suggesting that PM May says the offer on the Irish boarded is not legally binding. There was always going to be kick back on this front and the euro is firmer against GBP starting the week, back above .8800.
Plenty of more action this week before we feel the real slowdown into Christmas. The EU Summit will certainly drive some volatility, sterling is likely to be the most exposed here as we expect to see some details of trade talks emerge with the UK. UK Inflation also crosses the wires tomorrow and after the BOE raised interest rates there will be hopes inflation has topped out and will remain at 3%, while later in the week we expect no change from the BOE meeting on Thursday, but any details emerging from minutes will be closely watched fore forecasts on the economy.
It’s a similar week for the euro data wise, needless to say headlines from the EU will carry some weight for euro crosses, while the ECB meeting on Thursday is not expected to see any shift in policy from the central bankers, however any update or guidance on the economy could well see the market look to front run the ECB once more. The market got it wrong most of the year with regards to ECB easing, however will they take a more cautious approach this week? Elsewhere German ZEW tomorrow and employment data on Wednesday with garner some interest.
Stateside now and the fact the USD failed to rally higher following Friday’s strong NFP print means that we have seen some selling to welcome in the week. It’s been a mixed bag for the greenback since markets opened last night, USDJPY hit one month highs but has since been facing some selling. The euro is also firmer this morning which is impacting the broader based USD index which is more heavily weighted in around EURUSD vs other crosses. Markets focus will obviously be on Wednesday’s FOMC rate decision and markets expect to see the Fed hike rates another 25bps. Failure to do so will almost certainly see USD selling, but another area to watch out for will be if there is a shift in expectations for rate hikes next year. Yellen will be hosting her last press conference as well so her parting words will be interesting to hear.