Daily Analysis | Clear Treasury

Our daily analysis of EUR, GBP and USD.

EUR

The euro currency and the eurozone both in focus this morning. From a FX perspective, of note has been its fall against sterling over the past few weeks. Yesterday we saw it fall past its 2.5 year low and now threatening to break its post Brexit low.
- EURGBP trading at .8235 (GBPEUR 1.2142)
- Post Brexit low stands at .8205 (GBPEUR 1.2187)
As flagged here in recent weeks, the eurozone economy is not in a good place with the two largest economies of Germany and France facing multiple social and political issues, let alone economical problems. Later today the ECB meets and a 4th rate cut in this cycle is all but inevitable and fully priced in by markets. Outside chance of a bumper 0.5% rate cut but the vast majority of forecasts are expecting the standard 0.25%.
The ECB will announce its decision at 2:15 p.m. in Frankfurt. President Christine Lagarde will host a press conference 30 minutes later. Markets will be keenly focused on clues for the current ECB thinking and what might be the path for further cuts. They have been consistent in the tone and approach to date to lower borrowing costs only gradually.
- The ECB may look to subtly tweak the language in its policy statement — specifically the part that currently says it will “keep policy rates sufficiently restrictive for as long as necessary.” However, it will want to stay flexible, and is unlikely to depart from its “meeting-by-meeting” approach.

Yesterday’s US inflation data whilst much anticipated was a bit of a damp squib coming exactly as expected:
- Monthly Inflation Rate = 0.3%
- Annual Inflation Rate = 2.7%
- Annual Core Inflation Rate = 3.3%
No shift in inflation does leave the Fed in a tricky position. Whilst it wants to continue to help support and boost economic growth, inflation as these levels is still high for the central bank. Also, once the new Trump administration comes in, they are likely to try and pressurise the Fed to cut interest rates.
Markets are pricing in a near 90% probability of a 0.25% rate cut next week by the Fed.
USD remains steady and unchanged this morning, for example pivoting around the 1.05 versus the euro.

As discussed earlier, very quiet week so far for UK economic releases. That changes tomorrow with a number of reasonably key data sets:
- GFP Consumer Confidence
- Trade Figures
- GDP
The Bank of England MPC also meets next week and unlike both the ECB and Fed, no change in rates is expected due to fears over post budget inflationary risks. This yield differential is now the main driver of sterling’s current strength. As mentioned above, it has surged higher against the euro. Versus the US Dollar it has eked out some gains albeit slight more modest, as the dollar too is in strong demand. GBPUSD trading a little below 1.28 this morning.

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