Good Morning ALl Users;
we’ll see a new weekly currency report.
Last Week’s Highlights
Q3 UK, US GDP estimates beat expectations
GBP/USD falls to new non-flash crash low
BoE Gov Carney testifies before Economic Affairs Committee
This Week’s Highlights
Eurozone releases Oct inflation, Q3 GDP
BoE, Fed announce interest rate decisions
US releases October jobs report, NonFarms
Sterling fell against both the euro and the dollar last week. Last week’s key release was Friday’s initial estimate of Q3 GDP, which came in above expectations. GDP growth slowed less than expected to 0.5% from 0.7% in Q2. The pound continues to remain relatively under pressure in light of ongoing Brexit uncertainty, particularly over the possibility that the UK will pursue a “hard” Brexit. GBP/USD fell to a new low since 1985 (excluding the flash crash on 7 October) on Tuesday, around 1.2082. Consumer Confidence, which had risen to pre-Referendum levels in October, fell from -1 to -3. BoE Governor Carney testified before the House of Lords Economic Affairs Committee, reiterating that although the BoE does not target the exchange rate it is keeping the pound’s level in mind. Sterling fell ahead of the testimony on comments from Chancellor Hammond that “no request for quantitative easing had ever been denied”.
The pound then rallied during Governor Carney’s testimony.
The economic calendar is busy for the pound this week. Releases kicked off on Monday with Mortgage Approvals, which rose to 62.93K from 60.98K, and Consumer Credit, which was lower than expected at £1.4B compared to £1.6B in August. Attention then turns to the UK’s Manufacturing, Construction, and Services PMI releases. The main event of the week is Thursday’s Bank of England meeting. The BoE is expected to keep interest rates on hold at 0.25% following a series of largely above-forecast data since its August stimulus package. It will also release updated projections in its quarterly Inflation Report. Upwards revisions to its projections and a signal that the BoE is less likely to cut interest rates again could strengthen the pound, while a cautious tone could weigh on the pound. Additionally, there has bene some speculation that BoE Governor Carney might announce this week whether he will stay on at the BoE to serve a full term.
The euro made gains against both the pound and the dollar last week. The Business Climate in Germany improved more than expected. The index rose from 109.5 to 110.5. Preliminary CPI figures came in above expectations in both German and Spain, offering the euro some support on Friday. Final Manufacturing and Services PMI figures came in largely above expectations. Of note, the French Manufacturing index returned above the key 50 mark indicating industry expansion following seven consecutive months below 50.
Key releases for the euro this week include preliminary October CPI and Q3 GDP growth figures for the Eurozone. Annual inflation held at 0.8% and core inflation rose to 0.5% from 0.4% as expected. Q3 growth held at 0.3%, with annualised growth at 1.6%. Other releases out this week include final PMI figures and German Unemployment Change, which is expected to remain flat.
The dollar made gains against the pound but lost ground against the euro last week. While initial estimates of Q3 GDP were higher than expected at 2.9%, compared to expectations of 2.7% growth and up from 1.4% in Q2, the dollar remained broadly under pressure on Friday. Other data last week were mixed. Consumer Confidence, as measured by the Conference Board, fell to 98.6 from a downwardly revised 103.5. New Home Sales rose less than expected while Pending Home Sales rose more than forecast. Core Durable Goods Orders returned to growth as expected but Durable Goods Orders overall fell by 0.1%. Markets continued to expect that the Fed would hold off on raising interest rates in November but would likely move in December.
The calendar is also busy for the dollar this week. Releases include Personal Consumption Expenditures, ISM Manufacturing and Non-Manufacturing PMIs, ADP Non-Farm Employment Change, and the October jobs report, as well as Wednesday’s Fed meeting. The Fed is expected to postpone raising interest rates this month, which will be largely priced in but could weigh on the dollar. Language in the accompanying statement will be closely watched for signals that December remains on the table, and this week’s PCE and jobs report data will be among the pieces that shape market expectations for a December hike over the coming month. A strong jobs report could offer the dollar support as the week draws to a close and would likely add to the case for raising interest rates in December. US politics will remain in focus with one week to go until the Presidential elections.
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