GBP/EUR 1.2615 (0.7927)
The tone remained positive through much of yesterday’s session, European markets got off to a positive start following a better than expected print of the German IFO business climate survey, which measures confidence in the business climate, the reading rising for the first time in seven months. This positive reading helped lift European stocks higher while also holding the EUR off recent lows. Once again US markets followed European markets higher, the S&P rising by .3% and closing at record highs once again, overall the USD was stronger on the day but its performance was mixed, the greenback gaining ground against AUD and NZD as well as other commodity bloc currencies, while losing ground against European currencies. In overnight trading the tone has been slightly more subdued with mixed trading across indices, Japanese stocks traded higher on the prospect of additional easing from the BOJ, while in Australia the ASX dropped close to 1%.
The EUR has started the week on firmer ground following last week’s fresh lows, after ECB president Mario Draghi provided the market with some very dovish comments, expressing his frustration at persistently low inflation and stagnant growth. Yesterday’s better than expected German IFO helped the EUR higher but it was comments from several ECB members that helped the EUR higher, perhaps suggesting some discord amongst the ECB’s ranks. The ECB’s Nowotny answered questions yesterday and suggested that additional stimulus as early as Q1 2015 may be too early. Also across the wires was Jens Weidmann, a known hawk amongst the ECB’s ranks he said there were legal hurdles to ECB quantitative easing. There has been a lot of additional easing priced into the EUR over the last few months and even more so in the last week, any comments like the above that may see a more moderate view of ECB action will likely support the single currency further, but gains will be capped as long as easing hangs over the currency.
German GDP released this morning confirmed growth of 1.2% year on year, with .1% through the three months of Q3. Overall German data was better this morning with exports and imports stronger than expected with consumption and government spending also both up. While this obviously reflect some good news from the core of Europe it is likely to do little to change ECB policy in the near term, ECB officials appear content for now to see how recent easing will feed through the economy, before they make any decision of further steps. EUR strength will remain limited in this timeframe.
GBP has struggled to find any meaningful footing of late, Draghi’s comments last week saw EURGBP fall back below the .8000 level, this was more on EUR weakness than outright GBP strength but the pound did find some small support on some firmer data. GBPUSD has been trading in a range between 1.5600 and 1.5735 since the 13th of November and as yet no additional catalyst appears to support a break to either side. That brings us to today however where the pound has started the day under some pressure ahead of a host of BOE officials presenting in front of parliaments Treasury Select Committee. Considering the dovish rhetoric from the BOE’s inflation report and suggestions from Mark Carney he may have to address a letter to the PM should inflation fall below 1%, it is not surprising that markets are expecting a more subdued tone from BOE officials, should inflation feature prominently in discussions we may see GBP face some further selling pressures.
We have a shortened week in US markets with Thanksgiving due on Thursday so we have a weeks’ worth of data crammed into three days from the US. As discussed yesterday the USD advanced to fresh 5 year highs in trading yesterday but the greenback’s performance was imbalanced. It edged to fresh highs despite losing ground against a basket of European currencies, the USD’s primary strength coming from the depreciation of its major counterparts over the last 3 to 4 month. We have continued to point to a mixed pace recovery in the US and while the economy maintains a path to recovery there are still some concerns. Yesterday’s services PMI reading highlight this with the figure declining for the fifth consecutive month, despite remaining above the key 50 contraction/expansion level.
This afternoon we have plenty of more data due out to help us assess the pace of the US recovery, the second estimate of Q3 GDP for the US is expected to have slowed from 3.5% to 3.3%, while we also have personal consumption data and housing stats as well. Later in the session we also have US Consumer confidence data across the wires which is expected to have picked up from the October reading. Volumes traded have been low to start the week so we may not see any major new trends develop ahead of the thanksgiving break in the US, for now confidence in the US recovery remains high, any weaker data points carry weight to start USD selling into the holiday.