Currency traders have piled into the Euro in the past few trading sessions on the growing optimism that an improvement in economic conditions in the currency bloc could encourage the European Central Bank to begin removing its accommodative monetary policy later this year. Net long positioning for the Euro last week hit a record high, causing a sharp appreciation in the currency that has now seen it rally by almost three percent in the past three trading sessions.

Yesterday’s trade data failed to halt the Euro in its tracks, showing that the currency bloc’s surplus with the rest of the world expanded in November. The surplus swelled to 26.3 billion Euros in November, an increase on the 18.9 billion recorded in October and higher than the same measure from a year previous. With markets closed in the US in mark of Martin Luther King Day, a lack of liquidity or news out of the US economy meant that there was nothing in the way of a catalyst to bring the recent trend of Euro strength and Dollar weakness to an end.

Hopes of softer Brexit buoy Sterling, UK inflation revised lower

Sterling had an equally impressive day against the US Dollar on Monday, with the currency jumping above the 1.38 level for the first time since Britain voted to leave the European Union in June 2016.

Media reports out of Europe last week has continued to provide solid headwinds to the Pound. It was suggested that both the Netherland and Spain were open to a ‘soft Brexit’, seemingly improving the chances that the UK could achieve a more favourable deal when it finally cuts ties with the bloc. In a similar vein to that of the Euro, bullish bets on the Pound have risen sharply in the past few days, with net long Sterling positioning currently at its highest level since mid-September 2014.

This morning’s updated inflation data for December was revised modestly, although the impact on the Pound was minimal. The headline measure was changed to 3% from 3.1%, and there was a downward revision in the core number to 2.5% from 2.7%. This still remains comfortably above target and we would need to see an additional slowdown in the measure to change our call for another Bank of England interest rate hike in 2018.