Sterling edges higher after three consecutive weekly losses

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7 November 2017

thomasdodds

The major currencies were largely range bound on Monday after an eventful few weeks that has led to one of the most volatile periods of currency trading so far in 2017.

S
terling ticked modestly upwards yesterday, back above the 1.31 mark against the US Dollar after three consecutive weeks of losses. With Governor of the Bank of England Mark Carney claiming at last week’s central bank meeting that Brexit talks would be the biggest driver of UK interest rates, investors have been growing concerned that the lack of progress on negotiations could delay the process of monetary normalisation. Prime Minister Theresa May spoke on the topic of Brexit on Monday, claiming that she soon wanted the UK and EU to agree outlines of any transitional Brexit deal.

In the US, the Dollar ended London trading only very marginally higher against its major peers. The market has appeared unfazed by Donald Trump’s decision to nominate Jerome Powell as the next chair of the Federal Reserve. Powell is seen as a generally safe choice whose views on the path of monetary policy are mostly in line with that of existing Chair Janet Yellen and unlikely to materially impact the course of Fed hikes in 2018.

With economic data at a premium in the US this week, the Dollar is likely to be driven by political developments. We think that focus will shift to the effects that the US tax cut will have on an economy already near full employment.

Euro range bound amid lack of major announcements

A relatively quiet day of FX trading meant that the Euro was barely changed for the day, ending London trading just below the 1.16 level versus the Dollar.

Yesterday morning’s revised Eurozone business activity PMIs were, on the whole, positive for the overall outlook health of the currency bloc, although was largely overlooked. The composite index was revised upwards slightly to 56.0 in October from the previous 55.9 estimate, albeit remaining below September’s 56.7. Despite the slight drop off in activity last month, the Eurozone economy remains on track for a strong finish to 2017 that has seen the currency bloc expand at a much faster pace than the majority of analysts had anticipated at the beginning of the year.

Retail sales data this morning is expected to show that consumer spending picked up pace in the Eurozone in September. Other than that, activity in Europe should be limited and the common currency will largely take its cue from events elsewhere.