Market News & Insights
30 November 2017

Sterling Powers Ahead

Sterling continues the march higher on hopes progress is being made in Brexit talks. GBPUSD is pressing back above 1.3400 and to fresh two month highs while the stronger pound has seen EURGBP drop back below .8800 this morning,. Things are far from sorted in this ongoing saga and even last night PM May commented that negotiations were continuing, while some headlines quoting EU leaders suggesting “we’re not there yet” (in terms of an agreement). While it did temper the pounds advance late in the day yesterday, it has since found fresh resolve. The USD was also finding itself bid despite the rise in tensions between North Korea and the US once more, the USD index traded more or less flat on the day yesterday but overnight and this morning the dollar is trading firmer. Month end today and with that we expect to see the usual round of rebalancing flows so close attention will be paid to the fixes throughout the day. Models suggest that there will be some slight EURUSD demand, some light GBPUSD demand and AUDUSD demand, while USDJPY is slightly neutral – this may well result in USD selling later in the afternoon, with particular attention focused on the 4pm fix.

We’ve seen plenty of comments from Fed officials in recent days and their general tone and rhetoric has been supportive of further rate hikes in the US, albeit at a controlled and measured pace. While Janet Yellen took office as a dove, it would appear that she will be flying out as a hawk with expectation focused in the short term on a December rate hike, while next year focus will be on Jerome Powell and his chairing of the Fed. Yesterday’s third quarter GDP print was slightly firmer than expected at 3.3% annualized, however there was some weakness in consumption data which may be a concern should it persist. The real focus for the USD today will be back on the data again and the PCE readings, the Feds favored benchmark for inflation. The core reading is expected to come in at 1.4%, up from 1.3% and should help the USD remain in favour if that’s the case.

The morning session will be focused on Eurozone data, specifically November’s initial reading of CPI. This is expected to have risen to 1.6%, up from 1.4%, while the core reading is due to have risen to 1%, up from .9%. We also expect to see Eurozone unemployment remain at 8.9%. Thus far this morning we have seen euro selling, driven by some slightly dovish comments from the ECB’s Merche who spoke in Rome. EURUSD broke back below the support/resistant zone around 1.1860 area and now we’ll be looking to the next level of major support just below 1.1800. 1.1890 should hold any move higher today. EURGBP now looking back towards firm support around .8735. This level has held any move lower in EURGBP since June, so a break here could be pivotal for this pairing. That being said it’s provided plenty of support through the year and we have bounced higher from here no less than 9 times in the last 7 months, probability would favour a repeat of that scenario.