Dollar weakness short-lived
The dollar’s reversal yesterday surprised many, including myself. After appearing to regain a sense of normalcy from rallying for three straight weeks since Trump’s election, the dollar lost out against the pound, the euro as well as the yen for much of the morning. Nonetheless, as the US began to wake up and look at their screens, they took advantage of the lower price of the dollar, hosing up the cheaper currency and sending it into positive territory once more.
Month-end flows should prove negative for the dollar ahead of the key risk events later this week, including GDP figures, personal income and spending and, most importantly, the jobs report on Friday. This is the final jobs report of the year, and the US is expected to have added approximately 175,000 jobs in October, continuing the record breaking series of job gains seen under the Obama regime.
With the market already pricing in a 100% chance of a rate hike on December 14th, it’ll be interesting to see how many investors will be spooked by a poor jobs report, should that be the case on Friday. It’s unlikely the Fed would change their tune unless there was a serious catastrophe, which could limit the extent to which the market reacts to the figures in a few days’ time.
Draghi warns that Brexit risks are asymmetric
ECB President Mario Draghi spoke yesterday afternoon, and there was a hint of a broken record around his comments that the UK, not the Eurozone, will suffer the most under a ‘Hard Brexit’. Despite reports yesterday that HM Government do not expect to be offered single market membership as part of the departure negotiations, there’s still a firm impetus among many MPs arguing to put membership front and centre of any talks with the European Union following the trigger of Article 50.
Pound’s recent surge can only go so far
These reports come just as the pound enjoys another extended run against the euro, with the Bank of England’s sterling index rising close to 5% since the beginning of November. While markets certainly aren’t changing their minds over the future of the pound, it appears investors are beginning to take notice of the surprisingly strong economic data we’ve seen here in the UK as well as potential ramifications for the Eurozone once the departure from the EU becomes cemented.
Data’s relatively sparse today, with just the US second reading of GDP at 1330GMT (expected unrevised), but mortgage approvals in the UK will be eyed for a measure on the sentiment in the housing market.