GBP/EUR 1.2008 (0.8328)
The afternoon session yesterday was one of consolidation in the absence of US Markets yesterday, the USD however was still facing some selling pressure, perhaps the most notable movement on the day was in GBPUSD as it looked to target January 2013 highs around 1.6380, a good attempt was made at the figure overnight but GBPUSD ran in to selling pressure just ahead of 1.6370. Overnight risk has been slightly less supported with Asian equities closing marginally lower, AUD and NZD have both been weaker versus their G10 rivals. Elsewhere the JPY continues to face declines, EUR rose close to 5 year highs against the Japanese currency whilst USD clocked up its 4th monthly advance against the struggling Yen.
There was a whole host of data released for the Eurozone yesterday and if anything it simply once again shows the two paced recovery between Germany and the rest of the Eurozone. German unemployment dropped a surprise 10k, although the unemployment rate remained unchanged at 6.9%. German CPI bucked the recent Eurozone trend and say inflation figures rise .2% in November. Eurozone consumer confidence remains subdued at -15.4 whilst economic confidence has been slightly lifted to 98.5 from 98.
Today’s Eurozone inflation readings will be vital to the outlook for the single currency following last month’s decline to sub 1%. The interest rate cut at the beginning of the month may have had a slight effect of raising price pressures but for most disinflation is set to continue, should we see continued weak readings further pressure will mount on the ECB to act, either via negative deposit rates of some form of non standard easing once again. With the final ECB meeting of the year scheduled for next week this will be a key release to manage expectations. German retail sales already released this morning saw declines of .8% in October vs .5% gains expected and have set the EUR off on a weaker tone for the day.
Yesterday news seemed heavily focused on the UK housing sector following news the BOE would end their Funding for lending (FLS) initiative for mortgages. The BOE have been having difficulty convincing markets that interest rates will remain at all-time lows for some time, with markets now pricing in rate increases for early 2015. This has been creating an issue for the BOE and with much of the UK’s revival attributed to housing growth the BOE are looking to end their support of the mortgage markets, but will keep FLS in place for business lending.