Yesterday proved to be broadly mixed. In Europe the German DAX was down, French CAC was up, and the regions STOXX 600 was also trading higher. The US however was not so buoyant, the DOW, S&P and NASDAQ all traded lower despite far better than expected data from the US, where Q4 GDP was revised higher to 2.9% from 2.5% (vs 2.7% expected). The resulting price action saw the USD press higher on the day, the USD index up .9% and almost 1.35% from the week’s lows while the three month Libor rate rose above 2.3% to its highest level since 2008. GBP has been slightly weaker, not aggressive selling by any means but as we are half way through negotiations with one year left to the transition deadline, things are perhaps not as clear as they should be despite some supporting headlines. Overnight sentiment remained mixed, JPY clawed back some ground on the USD having lost almost 1.5% through yesterday. Standard warning for this time of year as well, it’s month and quarter end and with that we’ll be seeing larger than normal FX flows for rebalancing, models would suggest that USD should find itself in demand for the day up into the 4pm fix, and we may well see further GBPUSD declines as models suggest selling of this pair will be quite strong.
It’s been a quiet week for the euro this week thus far. The single currency has been void of any major data releases and if anything has been content to flow with broader risk trends. Given the heavy backing of the EC the euro falls into that “safe haven” basket, as it has done for several years. The key focus for the ECB remains on inflation, so today we may actually get some fundamentally driven direction from the euro as German CPI data for March is due. These are preliminary figures while the month on month rate is expected to remain at .5%, the year on year figure is set to rise to 1.7% from 1.4%. Certainly progress but should the rate fail to meet its lofty expectations then the euro will be at risk of selling. It’s been a mixed back for the euro thus far this morning, it’s weaker against the stronger USD, stronger against the weaker GBP and weaker vs the JPY, CHF and some others. EURUSD briefly dropped below 1.2300, this appears to provide some light resistance for this morning, however larger declines back towards 1.2235/50 zone are not ruled out.
Sterling finds itself in a tricky spot. A year ago today the UK triggered Article 50 and while there has no doubt been progress made, last week’s transition deal allowing the UK more time to implement the required changes in order to leave the EU has been seen as progress, there are still major obstacles to address. The agreement on EU’s “divorce bill” was also seen as a step in the right direction, but it’s also dependent on many other factors and as certain members of the UK Government continue to point out, “there is no deal without a deal”. The fact is, much of what has already been agreed can easily come apart and with the UK government failing to address the issue of the Irish boarder for one, there remains some considerable stumbling blocks. We haven’t even begun to discuss trade and tariffs and that’s when things will likely get really dirty. So GBP is not out of the woods, its recent strength helped by a hawkish BOE, is fragile. Should the BOE fail to hike rates at the next meeting (I can’t see why they would) then sterling may well find itself under renewed selling. EURGBP now looking at a range within a range, larger range is .8666 up to .8800, while intraday .8730 up to .8768 in the tight range.
Stateside and the PCE (personal consumption expenditure) core inflation reading is due out, this is the FEDs favoured benchmark for inflation and a gradual rise to 1.6% expected. There’s also jobless claims, consumer sentiment figures and personal spending data all due across the wires. A busy afternoon but the PCE reading is the big hitter. The Fed’s Hawker also speaks later in the day on policy and so his take as always, will be interesting. As mentioned above, USD demand is expected through today for month end rebalancing so expect the USD stronger into the 4pm fix. GBPUSD sitting on support around 1.4150, a dip to the 50 day moving average at 1.4122 saw a quick bounce but a break below may well see a drop as low as 1.3845.