Dovish talk weighs on euro. Sterling and dollar trading flat with market awaiting fresh data.

Tom Tong26/Nov/2013Currency Updates

GBP

Following last week’s excitement over BOE growth and inflation reports, the London trading kick off was a surprisingly muted affair, with trading across the board relatively flat. Presently sterling is taking leverage from a consistent carousel of strong data out of the UK and a bullish sentiment for growth prospects amongst both the BOE and government.

Fresh gains against the dollar and euro were wanting yesterday, the pound slipped a whisker down on both the euro and dollar. However, this is merely gains being fought back following the sterling rally last week. Fresh movement was against the yen, with sterling hitting a 4-year high. Japan has been on the ropes, suffering from a run of poor macro data, the threat of deflation and a finance minister stating that a devaluation or alteration of the yen is now a possibility. Naturally leading to the yen falling across the board, against the dollar it is also limping near a 6-month low.
Data releases are skinny for the UK this week. Traders will be itching for the release of the revised second quarter GDP report on Wednesday. The bookies favourite Mark Carney will again be in the limelight doubtless fielding questions over the odds of monetary tightening by the BOE. Ultimately any further significant Sterling rally may quell inflation expectations and investors BOE rate expectations, hence the current market obsession with the BOE sentiment towards UK growth and likely timescale for an interest rate change.

No data out of the UK today.

EUR

The euro continues to reel from the surprise rate cut. London closed with the euro up against sterling and slipping against the dollar. After the ECB rate cut led to spectacular lows it is now scuttling upwards with fair gains. However, it is still far off the record highs seen earlier in the quarter. It is further leashed back by expectations that the ECB may have to further loosen monetary policy to ward off the horror of deflation. Various ECB members have proclaimed that there remains further rate cutting options. The uncertainty seems to be holding back both euro bulls and bears with both parties waiting for further euro data to portray the state of economic affairs.

Fresh dovish talk was negative for the market view and euro currency recovery. Following the rate cut the euro gains have been notable with a clear upwards direction against its most traded pairs. The movement was slashed by two members saying rates may go even lower. With the market jumpy, any hints on a possible rate change is inevitably going to cause movement. Analysts and traders continue to mediate over the chances of an ECB rate cut to negative levels.

The market will look to Thursday for a greater insight into eurozone recovery and growth prospects with vast macro data due for release.

No data out of the EU today.

USD

Overall trading was subdued in what is a short week for the US with Thanksgiving on Thursday and a rush of US data out prior to the celebrations. US data was relatively mixed, with purchase contracts for homes falling to a 10-month low. Conversely the services sector is looking increasingly rosy with activity rebounding strongly.This is notable, similar to the UK, the US has an economy that heavily revolves around the services sector. Therefore, service sector activity is often a mirror for wider economic activity.

There is a ton of data out the US this week with dollar movement inevitable. We have data for the following sectors- construction, retail, services. Furthermore we have employment data with jobless claims. More will involve the media circus over what is widely being called as surely a record Christmas for retail sales. The US has battled recession over the past few years and the fight has been harsh. They will be keen to celebrate the festive period and a splash of dollars is inevitable with the market widely expecting the tills to ring at record highs. However, retail spending is notoriously unpredictable and the reports often to have a bias to the upside. The market will be concerned with the initial jobless claims the US labour market is continually improving, which always leads to the “will they, wont they” debate on the timescale of a taper. The majority are calling a taper for Q1 next year, which would allow the FED sufficient time to examine the health of the US economy.

Data of note out of the US today includes consumer confidence, Redbook index and house price index.

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Written by Tom Tong

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