The season to be jolly is almost upon us. The US dollar (USD) and particularly the euro (EUR) will be hoping for some festive cheer in December, after both currencies ended November on the back foot.
The pound on the other hand managed to push higher, having deflected attention from failings in several of its major lending institutions to events in the US and Eurozone.
GBP: Sterling finishes November strongly
Sterling (GBP, pound) finished November in an erratic fashion, moving lower during the morning session but pushing back to highs by the close of the European markets. The main catalyst for the frosty reception was the Bank of England (BoE) bank stress results and the Financial Stability Report. It was revealed that Royal Bank of Scotland (RBS) is the worst prepared of the UK’s biggest lenders to cope with another financial crisis – should it happen. The BoE found Barclays and Standard Chartered also missed key hurdles, but had implemented measures to address them. The results forced RBS to devise plans to bolster its balance sheet by £2 billion through cost cutting and shedding assets. By the afternoon, however, the market had shrugged off the bearish comments, as focus was redirected back onto the incoming Trump administration and Italy’s upcoming referendum.
As we open the door to the first window on the advent calendar, much of the festive focus will be on the manufacturing sector, with the release of Manufacturing Purchasing Managers Index (PMI) data. Given the post-Brexit slide experienced by sterling, we expect this to remain elevated.
EUR: Euro hampered by OPEC announcement
Yesterday saw a large amount of economic information come out of the European Union (EU). The key data release was German Gross Domestic Product (GDP) which came out as expected, as did the majority of other data released. Apart from Italian Consumer Price Index (CPI), which came out better than forecast, but still showed a slight reduction in price levels over the last month. A speech delivered by European Central Bank (ECB) President Mario Draghi talked about productivity gains in Europe, with little relation to the strength of the single currency. Yesterday the euro (EUR) weakened against both the US dollar (USD) and the pound (GBP), despite midday strength against both currencies – especially the pound. The uptick in volatility was likely due to the announcement by members of the Organisation of the Petroleum Exporting Countries (OPEC) that an oil production freeze had been agreed, which led to investors to react and move funds into oil.
Today will be a slow day by comparison, however there will be a raft of Manufacturing Purchasing Managers Index (PMI) data released from Italy, Spain and Ireland, as well as the more impactful EU-wide and German figures. Ahead of the Italian Referendum on Sunday, Italy will also see monthly unemployment and GDP data. As we approach Sunday’s vote, investors will likely turn their focus to the result, and it will begin to effect markets more.
USD: Positive data helps the dollar
The US economic data flow continues to be positive as the November Chicago Manufacturing PMI increased sharply and Octobers personal income and pending home sales for October beat expectations. This saw the US dollar strengthen close to a 14 year high yesterday against a basket of key currencies. However sterling bucked the trend and strengthened against the US dollar.
Today we can look forward to a busy day, with Unemployment and Manufacturing data due. Forecasts are not expecting any large differences in the data, compared to the previous month. Alongside this data, investors will be keen to see what effects the current oil price movements may have on the US Dollar.
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