GBP/EUR 1.2579 (0.7948)
The tone in Europe remained positive through yesterday’s session, better than expected data from Germany helped lift the tone into the start of the session and European equities extended their gains through the day, reaching fresh two months highs, the DAX posting its longest winning streak since May 2013. Markets in the US were mixed despite a better than expected revision to Q3 GDP, the S&P and Dow Jones closed marginally lower while the NASDAQ advanced. The USD index pushed to fresh five year highs on the news before we saw USD selling as profit taking took place. The greenback ended the day weaker against the EUR, GBP, as well as the Yen which rallied from close to a seven year low against the USD after the BOJ Governor said the economy is headed to achieve policy makers 2% inflation target. The USD has continued to face selling pressures this morning, although it has been outperforming higher yielding currencies like the NZD and AUD. The EUR has also started the day firmer, EURUSD failed to break below 1.2400 yesterday and we have already seen attempts towards 1.2500 this morning.
On the data front the US carried some big hitters yesterday, the release of a better than expected revision to US GDP through Q3 saw growth revised higher to 3.9% annualised versus the 3.3% expected. The offset of the better than expected GDP figure came from a weaker than expected consumer confidence report, however confidence was expected to rise to a seven year high but dropped at the fastest pace in 13 months. The selloff in the USD coincided with a drop in yields on US treasuries. Today is the last day ahead of Thanksgiving and we would expect some quiet trading conditions into the end of the week, that being said we still have today to get through and there is plenty of US data to take our interest this afternoon. Durable goods orders and weekly jobless claims cross the wires, as well as pending and new home sales data.
The BOE were testifying in front of the Parliament’s Treasury Select Committee yesterday and despite some concerns that the pace of UK economic growth is slowing, the BOE’s Governor Carney is still adamant that the central banks next move will be policy tightening, not further easing, with a rate hike the most likely step. Again the BOE speaker pointed out that rate increases would be “gradual and limited”, one of their favourite phrases. GBP was marginally stronger yesterday, despite losing ground against the EUR, the pound managed to test towards top of its two week range against USD. A revised set of 3rd Quarter GDP figures crosses the wires for the UK today and headlines the European trading session, expectations are set to confirm growth at 3% year on year with .7% growth through Q3. As GBPUSD is poised close to the top of its recent range a better than expected print here will carry the ability to lift GBPUSD back towards 1.5900 before major resistance is in play, while anything weaker will likely see the pound under pressure as rate expectations get pushed further down the line.
The Euro gained ground against most of its major counterparts through yesterday’s session but its advance was slow and limited, the OECD labelled the Eurozone region a global threat and the market still waits to see what, if any further action the ECB will be taking. The expectations are the ECB will announce a full QE program with the purchase of EGB’s, or eligible government bonds, but for now the scale and scope of ECB action on this front remains unknown. Recently the EUR weakens on central bank talk of additional easing before clawing back lost ground when no firm details arise, this process is repeated and will likely continue until we have some clear direction from the ECB.