GBP/EUR 1.1702 (0.8545)
Geopolitical tensions surrounding Syria continue but markets have scaled back their “worst case scenario” pricing, gold and oil are both back off highs and global equity markets are showing modest gains. The change happened later in the US session after European markets had posted losses, US markets were led by defensive, energy and mining stocks. This continued overnight with major Asian indices posting modest gains. There is still a risk of further escalation in Syria and we’ll likely see similar risk averse moves as earlier in the week if it does, for now though USD remains very firm, gold and oil, has not given back its gains.
Elsewhere the pound received a revival despite Mark Carney’s intentions. The new BOE Governor made his first public speech in the manufacturing heartland of Nottingham and looked to re-affirm his statement from earlier this month. The pound faced early selling pressure in the run up to the event as markets were expecting Carney to talk down the UK economy and pound further but his rhetoric didn’t change. Carney’s plan is to keep interest rates at .5% into 2017 or until unemployment reaches 7%. He is looking to encourage business to spend by confirming rates will remain low. He did talk up the UK economy and highlight that the pace of recovery is picking up, but should there be risks the BOE have the tools to act to support the economy further.
The pound rallied as markets are having trouble believing Carney’s 2017 target, although we’d need to see approx 700k jobs added to the economy to see unemployment drop to the desired level, something that may well take 4 years. Carney’s mention of having tools to keep rates low may be an indication that they are willing to use further asset purchases, but the pound has been advancing. This is possibly due to the relaxing of liquidity rules for banks which is hoped will free up lending into the real economy.
German unemployment data is due out this morning and no change is expected from the 6.8% level. There is also German CPI data due with the core inflation reading expected to come in at 1.7% year on year, rising .1% MoM , versus a July increase of .55. The EUR has been under selling pressure this morning with EURUSD breaking back below the key 1.3300 level and EURGBP falling back below .8580.
Later in the day we have US data, the key figure we expect to see is GDP revised up for Q2 from 1.7% to 2.2%. As we are well in to the second month of the 3rd quarter we would expect this figure to be relatively well finalised but as with all US data the reading will be watched for taper expectations. A weaker reading may see “Septaper” moved back to “Octaper”. Jobless claims will also be in focus with the four week average falling to 5 year lows, will this trend continue?
EURGBP has failed at .8650 resistance and has since fallen back below .8567 support, with the EUR under pressure we expect this pair to move back into the .8506 August lows but first target is .8539. EURUSD has been resilient between 1.3300 and 1.3400 but the break lower is putting the pair under pressure when the USD is seeing some strength across the board. EURUSD is currently sitting on support at 1.3255 but a break below should open up August lows towards 1.3200.