The Dollar reigns supreme for now as rising US yields and supportive Fed commentary and the prospect of December rate hikes from the Fed, along with Trumps’ vision for the future of America all favour demand for the greenback. Elsewhere rising oil prices helped boost sentiment in European stocks yesterday as they edged out some modest gains. The Euro however is under pressure, EURUSD traded to 2016 lows at 1.0700 this morning, while EURGBP holds below .8600 following yesterday attempt to gain traction above .8700 failed and thus quickly reverted towards recent lows. The BOE’s Mark Carney was also across the wires yesterday and his point was clear, despite somewhat weaker than expected CPI figures yesterday, inflation will be coming to the UK and will be rising above the BOE’s 2% target. This carries some favourable connotations for GBP as it restricts potential easing avenues for the BOE, but could weigh on the UK economy and labour markets should it rise too quickly, and let’s not forgot the impact any Brexit talk can have on an already fragile pound. Overnight, the Nikkei once again advanced as a weaker JPY favoured demand for stocks, while elsewhere performances were mixed with the Hang Seng trading moderately lower and S&P/ASX pressing slightly higher.
GBP was on the back foot to start the day yesterday as an apparent leaked government document suggesting there still was no Brexit plan, weighed on sentiment. This was later refuted by the government but the damage had already been done, and once again acts as a reminder just how volatile GBP pairs can be around any headline that is Brexit related. CPI readings were weaker than expected, October price growth at just .1% vs .3% expected, while core prices rose only 1.2% year on year down from 1.5% in September. However, we will likely not see the real impact of price growth feed through into UK figures until the New Year, as pre Brexit hedges begin to run out and consumers face rising prices to accommodate for more expensive imports. We are already having these conversation with a number of clients who face these challenges, and 2017 is sure to bring many more as Article 50 progresses. Labour market data is in focus for the UK, but with no change expected in the unemployment rate, most focus will be on wage growth figures.
There has been little in the way of anything negative about the Euro in the last week, yet EURUSD and EURGBP find themselves down over 5% from last week’s highs. The fact is, the Eurozone is expected to face pressures from Brexit and now Trumps’ plans to draw US business home will also carry negative sentiment for the region. At the same time inflation concerns in the UK, and the prospect of the Fed raising interest rates mean the ECB are once again looking like diverging their monetary policy as they are expected to increase the scope and duration of their asset purchase program in December. There is little in the way of major data from the Eurozone today but we do have several speakers across the wires. EURGBP is currently supported around .8570/75 area for now, where we’ve seen the pair bounce several times over the last 5 days, resistance between .8727 and .8750 should hold moves higher intraday, and only a break above the 100 day moving average around .8752 would remove the bearish bias. EURUSD has bounced off 1.0700 thus far already this morning which represent 2017 lows, with space below towards 1.0600 likely to attract.