Sterling rebounded strongly yesterday, recovering almost all of Monday’s losses against the US Dollar as attention shifts to political risks in Europe, namely Italy’s constitutional referendum on Sunday.
The US Dollar index was little changed for the day, despite an upward revision in yesterday’s third quarter GDP numbers in the US. The US economy grew 3.2% in the three months to September compared to the 2.9% estimated. The fairly significant upward revision was largely driven by an increase in personal consumption expenditure, which is estimated to have grown 2.8%. A 0.8% increase in durable goods and a 1.2% expansion in the services sector contributed to the strength in consumption.
Figure 1: US GDP Growth Rate (2010 – 2016)
Meanwhile, the Euro remained under pressure on Tuesday and pinned around the 1.06 mark against the US Dollar after a disappointing set of consumer confidence numbers. GDP numbers out of France yesterday reignited concerns about the health of the Eurozone’s second largest economy. The French economy grew just 0.2% in the third quarter with flat consumer spending and stagnate investment largely to blame.
Eurozone wide inflation data for November this morning should receive fairly heavy focus. ECB President Mario Draghi will be speaking this afternoon, while an OPEC meeting in Vienna is expected to yield a deadlock on a production cut agreed in September. Oil prices fell 3% on Tuesday in anticipation of the meeting, sending commodity currencies lower across the board.
Major currencies in detail
GBP
Sterling rallied 0.8% yesterday, ending the London session effectively where it began the week.
The Pound received some decent support yesterday from data that showed lending in Britain expanded last month at its fastest pace in eleven years. Lending expanded £1.62 billion in October, bolstered by resilient consumer demand in the face of the Brexit vote in the summer. Mortgage approvals also surprised to the upside, increasing to over 67,500.
However, consumer confidence data overnight came in below expectations. The monthly index from GfK fell back towards post-Brexit lows, dipping to -8 from -3.
The Bank of England’s Financial Stability report will be published at 10:30 UK time, with policymakers to give their verdict on the health of Britain’s largest lenders.
EUR
The single currency was barely moved against the Dollar yesterday, ending the London session 0.2% higher.
Consumer confidence was unchanged at -6.1 yesterday. Industrial confidence, however, came in below expectations, falling to -1.1 from -0.6. Confidence among producers in the currency bloc has remained fragile following the Brexit vote and looks likely to remain so amid a number of high profile elections in Europe next year.
German inflation numbers also came in as expected. Inflation in Europe’s largest economy remained at 0.8% in the year to November according the initial estimate. This bodes relatively well for today’s Euro-wide CPI numbers.
Inflation data at 10:00 and Draghi’s speech at 12:30 UK time will be the main events to look out for in the Eurozone today.
USD
The US Dollar dipped 0.2% against its major peers on Tuesday, despite the relatively impressive GDP numbers.
The US economy is expected to continue to grow at a steady pace in the coming quarters, particularly given consumer confidence in the country is now at its highest level in 9 years. The monthly confidence index released yesterday rose sharply to 107.1 from 100.8. However, uncertainty regarding growth forecasts for next year is higher than usual due to the expected fiscal and trade policy changes under the leadership of Donald Trump.
A number of second tier economic announcements in the US this afternoon should lead to a busy day of trading in the US today. Consumer spending, income data and the latest private sector employment figure from ADP will be the main releases today.
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