Foreign exchange markets quiet for second consecutive day

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8 November 2017

thomasdodds

The FX markets spent a second straight day mostly in a holding pattern, with emerging market currencies stealing much of the spotlight.

A
n easing in the recent sharp bounce in oil prices, which has seen oil rise to back above $63 a barrel, weighed on the commodity driven Russian Ruble, Canadian Dollar and Norwegian Krone. All three ended yesterday as three of the worst performing currencies, with the Ruble slumping by almost two percent.

Sterling was on the back foot again on Tuesday, with an upcoming round of Brexit negotiations putting investors in a cautious mood. Talks between the UK and EU will enter the next stage on Thursday, with traders hoping to get firmer details on what a departure from the European Union will mean for Britain’s future trade relationship with the bloc.

With no economic data releases in the UK today, the Pound is likely to be driven by sentiment towards the Brexit negotiations. The next economic release of note will be Friday’s manufacturing and industrial production numbers.

Impressive retail sales data fails to inspire Euro rally

The common currency slipped back below the 1.16 level against the US Dollar yesterday, ending London trading around 30 pips lower. In a day void of any meaningful news, investors refocused on the growing divergence in monetary policy between that of Eurozone and US. With the market now not expecting a rate hike in the Eurozone until 2019 following the recent ECB meeting, and with the Fed set to raise rates on multiple occasions next year, risks to EUR/USD still appear skewed to the downside.

President of the European Central Bank Mario Draghi spoke yesterday, although added nothing in terms of monetary policy. Tuesday’s retail sales data was also largely overlooked, despite comfortably outpacing expectations. Sales in September jumped by 0.7% month-on-month and by 3.7% on a year previous.

In the absence of any significant economic releases today, we think the market will continue to focus on the diverging monetary policy stances between the ECB and the Federal Reserve.

US Dollar index rises to near two week high

Broad weakness in the Euro helped lift the US Dollar index to its highest level in ten days yesterday. The Dollar was helped on its way by some encouraging economic data, particularly on the health of the US labour market. The latest JOLTs job openings again exceeded expectations in September. Openings in the world’s largest economy increased to 6.093 million.

Wednesday looks on course to be an equally quiet day in the US with mortgage application data the only real announcement on the docket. Initial jobless claims on Thursday afternoon will be the next release of note.