GBP/EUR 1.2443 (0.8025)
Data from Europe helped equities rally higher for the second consecutive day, the German ZEW saw economic confidence rise for the first time this year which saw increased demand from stocks, the DAX led the charge rising some 1.3% followed by the CAC up .7% while the FTSE rose .4%. The Greek ASE index was the best performer in the region rising 3.1%. The positive tone carried through into the US session with the S&P once again trading to record highs, closing the day up .2%. Stocks in the US have been treading water around recent highs but further progress appears limited for now, without any new catalyst driving appetite. The EUR was one of the strongest performing of major currencies yesterday advancing against most major counterparts, while the JPY was an underperformer, the prospect of recession, further easing as the BOJ opted to maintain their JPY80trln annual target and early elections all driving JPY to fresh lows, USDJPY pushed above 117.00 in overnight trade and further upside for USDJPY looks probable.
As discussed the EUR was one of the best performers on the day yesterday, the release of the German ZEW economic sentiment survey was far better than expected posting 11.5 vs .5 expected, also posting its first increase in confidence in 11 months and closing the gap following last month’s negative reading. This turn in confidence is only a starting point and on its own does not carry enough weight to change the outlook for EUR for any meaningful duration, once again there are several ECB speakers crossing the wires today, along with some construction data due for release. PMI data and consumer confidence figures due for release tomorrow carry a greater ability to move EUR pairs but gains still remain limited in EUR pairs, especially as the prospect of additional easing from the ECB remains.
The USD was a stronger performer in overnight trade but the USD has traded generally sideway for the last month, there has been a gradual creep higher in the USD index but the move lacks any major conviction and pullback are frequent , further USD gains will likely need a fresh driver. This evenings release of the FOMC minutes may well provide the USD just that, a stronger USD overnight suggest some pre positing for the Fed minutes which were deemed to have been relatively hawkish when the policy statement was released, markets will be looking at the transcript of the meeting to look for any indications on potential timings for rate hikes. PPI data released yesterday was firmer than expected, wholesale inflation seeing some price growth, we’ll be looking to see if this gets passed on to the consumer print. Housing data comes out ahead of the FOMC minutes, housing data continues to be very mixed month on month but both building permits and housing starts are both expected to have slowed through October.
The minutes from the November BOE meeting headline the European calendar this morning and the pound continues to find itself under pressure. EURGBP has broken back above .8000 while GBPUSD is testing 14 month lows just above 1.5600. The BOE’s tone is expected to reflect the more dovish rhetoric from last week’s inflation report, the key here will be the voting, previous meetings have seen two members vote for rate hikes, should these votes shift back to a more neutral stance we may well see further GBP downside. Yesterday’s better than expected inflation reading did little to lift the pound, inflation printed at 1.3% vs 1.2% year on year, with a .1% increase as expected through Oct. usually a stronger inflation report would have seen a GBP rally but given last week’s sub 1% inflation warning yesterday print failed to provide any lift. Should the MPC’s voting remain unchanged we may see some room for a GBP rally but for now UK rate expectations continue to put pressure on the GBP.