Foreign Exchange News
6 October 2017

Markets Not Connecting the Dots

We begin this morning in a similar fashion to yesterday with US stocks continuing their strong performance. The S&P 500 index extended its streak to 8 days of gains, closing yesterday at a new market high. This is the benchmarks longest streak since 1997 and has more than doubled in the decade since its pre-crisis peak. Asian stocks also carried this positivity into their market overnight, hitting a 7 week peak. In the EU, news from the Spanish constitutional court to suspend the Catalan parliament on Monday wasn’t entirely unexpected, but this decision will likely escalate matters in the coming days and may well hurt the euro, which until now has been relatively un-phased.

It feels some time has passed since we’ve actually spoke about economic data of matter as geopolitical issues weigh on markets. Today however, economic data looks to eclipse the political fiascos of the past couple of months. With a recent run of positive data from the US, the stars look to be aligning to support the view that a hike before the end of the year is a possibility. Fed Vice Chair Stanley Fischer, stoked markets interest back in August, stating that a one further rate hike this year was a possibility. Since then we have seen a number of fed speakers come to the fore supporting this view. Fed member Williams was the latest, not only backing a rate hike by December, but also lobbying for 3 additional moves in 2018. The markets however have some catching up to do with the Fed’s current dot plot outlook, meaning further moves for the greenback if market data improves.

The initial positivity of a December hike is driving up dollar bulls, with the greenback continuing to surge against its major peers this week. As stated above, markets look set to sideline Trump and co. and are instead concentrating on current economic data, starting with today’s Non-Farm Payroll figure. While today’s expected figure is expected to be hampered by Hurricanes Harvey and Irma with markets forecasting a figure of just 82K, you can expect any blemish here to be sidestepped. The earnings figure however which has been soft, offers potential for USD upside if we see a strong number here.

We have recently spoken about the political instability in the UK, and this is starting to have an impact on the pound as it looks set for another poor week, looking to end its third week in a row decline. The pound is back trading at levels not seen since August and further news of a coupe may see further selling. GBPUSD broke through 1.31 level this morning, while GBPEUR looks to cement itself below the 1.12 level.

 

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