Ready for Christmas
With little impetus to rock the boat before the end of the year, both investors and policymakers are taking things nice and easy.
The greenback remains strong but spent most of yesterday and the overnight session losing ground; this is not a fire sale by any stretch of the imagination and more likely traders cutting positions and booking profits before they head off for the festive period.
Once again, we have to think that the market is irrationally exuberant heading into the New Year and while the economic side of the new politics is being fully priced in – US and Chinese stimulus – the political side of the economics – policy mistakes and antagonistic trade stances – are not.
What stops the dollar?
The dollar has made an impressive run but our minds keep circling back to the inauguration of Donald Trump on January 20th as a possible turning point. Markets like to ‘buy the rumour and sell the fact’ and the swelling of asset prices, the dollar and inflation expectations could be a monster version of this trading plan. We cannot be sure until Trump is in the White House and that is in a month’s time.
In Brexit news, Theresa May’s appearance in front of a House of Commons Committee on Brexit yielded little of note for traders, although comments from the PM that suggested that her government are more open to a transitional deal for financial services will be seen as a positive. Her obfuscation around whether parliament would get a vote on the deal struck as part of the Article 50 negotiations was less so.
GBP/USD hits 4 week lows on USD strength
GBP/USD bumped through some fresh one month lows yesterday. This is more as a result of USD strength than GBP weakness and there was little interest in the cross throughout the day.
We get the latest public sector borrowing numbers at 09.30 but elsewhere news from the UK is expected to be sedentary at best.
Sweden likely to cut stimulus on quiet day
The Riksbank, the Swedish central bank, is meeting this morning and should be able to start at least talking about tapering of its bond buying program if not actually doing so. Inflation in the country is rising and growth remains healthy. A weaker euro doesn’t help their inflation expectations further forward but we think that the SEK could strengthen through the day.
Elsewhere, things are quiet and so we’ll leave it there.