GBP/EUR 1.1939 (0.8375)
Data has been light from the Eurozone this week as the US has taken centre stage on the economic release front ahead of tomorrow’s Thanksgiving bank holiday. Aside from the data releases however the EUR found support on news Chancellor Merkel and her party reached a coalition agreement with their rivals SPD with regard to wages and spending increases.
Although this was never a major risk it does provide an increased sense of political stability from Europe’s core and means we can now begin to address key initiatives that have been on hold due to the lack of an administration in Berlin- most notable on this front is the banking union including region wide supervision and resolution for troubled lenders.
Ireland continues to show signs of improvement and although its impact on the Euro is limited, signs of improvements in the employment sector in the periphery would provide a stronger lift to the Euro. Ireland is certainly leading the way with jobs growth up 1.2% in the third quarter and 3.2% year on year, the fastest pace of jobs growth since 2007.
Sadly Ireland is a long way ahead of other peripheral nations with respect for jobs growth and different demographics leave it in an advantageous position. Data from the Eurozone continues to be light today but German consumer confidence is on tap at 9.00am, overall German data has been to the upside and strong consumer confidence may well give the EUR a lift, having already reached fresh monthly highs late yesterday.
UK data has also been light this week but Mark Carney and co faced Q&A from politicians yesterday during a delivery to the parliament treasury committee. Overall there were very few highlights, if anything in our eyes there was a cautious tone. They would expect business expenditure and investment to pick up but stated this needed to be led by domestic demand, given consumption remains weak in the UK and alongside weak wage growth this demand may be hard to generate.
Slack remains in the economy and productivity needs to pick up to improve unemployment, Europe is likely to remain weak and be a drag on the UK economy. Most notable was Carney arguing the effectiveness of forward guidance to prevent rate rise speculation……it hasn’t exactly been working so far. This morning we have the revised set of Q3 GDP figures for the UK which are due to confirm Q3 growth, it may give GBP a short lift but without a surprise, volatility should remain subdued.
We have been inundated with US data this week and the picture continues to remain weak, there are signs of improvements in the economy but recovery is not consistent. Yesterday housing data was better than expected on the whole, however consumer confidence was worse than expected causing the USD to slide in the afternoon session.
Today we have Octobers USD durable goods orders, these are expected to decline 1.9% from last month which will be first decline in 3 months. Anyone looking for near term QE will be looking for a better reading than expected as a decline in these orders does not bode well for US recovery.