Euro, Pound and Dollar volatility up ahead of expected Thanksgiving market slowdown
26/Nov/2015 • Currency Updates•
A host of announcements and data releases led to a busy and unpredictable day of currency trading yesterday.
The US Dollar touched a fresh eight-month high against its major peers yesterday, buoyed by strong economic data. Service sector growth and durable goods orders both hit multi-month highs, while initial claims for jobless benefits continued to point to an improvement in labour market conditions.
In contrast, the Euro continued to be driven lower by the release of a report that further emphasised the divergence in monetary policy stances of the European Central Bank and the Federal Reserve in the US. The report, released by Reuters, suggests that Euro-area policymakers were considering implementing a number of unorthodox monetary policy measures in order to force inflation back up towards the central bank’s target.
Meanwhile, the Pound was given a boost by the Chancellor George Osborne’s Autumn Budget after UK growth forecasts remained largely unchanged and Osborne promised fewer austerity cuts.
Liquidity will be relatively light during trading today, with the US markets closed due to the Thanksgiving holiday. Announcements among the major economies will also consequently be thin on the ground, with German consumer confidence and the Bank of England’s Financial Stability Report the only releases of note today.
Major currencies in detail:
Sterling ended 0.2% up against the US Dollar and 0.7% higher versus the Euro yesterday, despite no major UK data releases.
There was little new information for currency markets to digest from the Chancellor’s latest budget statement yesterday afternoon. Short-term growth forecasts were raised, although essentially remained unchanged at a robust 2.4-2.5% over the next three years.
The government also announced reduced spending cuts, while raising its long-run budget forecasts, both of which would undoubtedly prove net positives for the UK’s overall economic outlook, and thus provide some long-term support for Sterling.
The OBR’s labour forecasts also pointed to a tightening in labour market conditions, a measure closely watched by the BoE when deciding on when to hike interest rates.
The BoE’s Financial Stability Report this morning is the only announcement today.
The Euro plunged to a seven-month low yesterday, although it did recover somewhat in the afternoon session to end 0.6% lower against the US Dollar.
This came after a story on Reuters revealed that the ECB is considering a host of additional measures in order to stimulate the flagging Eurozone economy. This included two-tiered bank charges for banks hoarding cash, as well as the buying of more exotic assets as part of its new aggressive QE programme. The central bank is also discussing buying rebundled loans, which would have a higher risk of non-payment.
The article makes it clear that the ECB will consider every tool it has available to boost inflation and growth in the Eurozone at its monetary policy meeting next week. This reinforces the divergence between the ECB and the Fed, hence the weaker Euro.
Little data of note in the Eurozone today means that much attention will turn to next week’s ECB meeting, where Mario Draghi is expected to announce the expansion of its QE programme.
Another good trading session for the Greenback yesterday saw the US Dollar index rise by 0.4% to its strongest position since March, buoyed by impressive data and a weak Euro.
Yesterday proved to be a busy session with US markets closed today. Durable goods orders impressed, rising well above forecast by 3% in October, the largest increase since June. The strong data provides further evidence of a robust level of consumer spending in the US, and should no doubt provide additional support for a Fed interest rate hike next month.
In addition, house prices rose above forecast by 0.8% in September, service sector growth expanded to a PMI of 56.5 from 54.8 and initial jobless claims fell again to just 260,000.
Elsewhere, consumer income and spending both rose marginally, while new home sales increased following a sharp decline the month previous. All of these data points should be good news for Fed hawks, with the market implied probability of a December interest rate hike now as high as 74%!
No data out today due to Thanksgiving means that attention will turn to announcements elsewhere.
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