Be prepared for the Christmas Market
Sterling held above 1.2550 against the Dollar and gradually moved higher to peak in the 1.2700 area where there was significant resistance. The Pound was the top performer due to the latest comments from the UK Chancellor of the Exchequer Hammond, who made a case for a ‘Slower Brexit’, and upbeat Chinese data.
There was cautious trading witnessed in the Asian equities, curbing the demand for risk assets such as GBP, as nervousness sets into the markets ahead of the two day Federal Open Market Committee (FOMC) meeting which starts later today. The UK currency gained some support from gains in oil prices, although prices drifted lower during the day.
Focus now shifts towards the UK CPI report due today. The UK consumer prices are expected to jump higher to 1.1% in November, after a 0.9% reading in October, whilst November core figures are also expected to tick higher to 1.3% versus 1.2% for previous month.
The latest inflation data will be watched closely today. A stronger than expected rate will increase speculation that the Bank of England could be forced into a rate increase while a low rate will reinforce expectations of a dovish stance.
The Dollar steadied against the Yen, but lost out to the Pound yesterday after a surge in Treasury yields.The US Dollar was nearly flat at 115.140 against the Yen. It climbed overnight to as far as 116.120, its highest since early February, as the benchmark 10-year Treasury yield popped above the 2.5 percent threshold following a surge in oil prices to a level unseen since September 2014. The Dollar may see 120 versus the Yen. However, a 0.25% rate hike by the Fed is also significantly priced in, and the Dollar is likely to be locked in between trend following bulls and profit-takers.
After touching a one-week low against the US Dollar last week following the European Central Bank (ECB) announcement, the Euro gained momentum and strengthened against the Greenbank, hitting a high of 1.0652 overnight. The rise was due to a jump in oil prices as investors take a position that will reflate the Eurozone economy.
German yields increased during Monday’s session which helped support the single currency. There was also some speculation of the ECB tapering future bond purchases during 2017. Italian political developments remained the focus on Monday with the new Prime Minister Gentiloni opening his new government. Markets remained on high alert for for news of capital-boosting plans from the Italian banks.
Data to watch: 07:00 GER Consumer Price Index (YoY) and (MoM)(Nov), GER Harmonised Index of Consumer Prices (YoY) and (MoM)(Nov); 09:30 GBP Producer Price Index – Output (MoM) and (YoY)(Nov), Producer Price Index – Input (MoM) and (YoY); 09:30 GBP PPI Core Output (MoM) and (YoY)(Nov); 09:30 GBP Consumer Price Index (MoM) and (YoY)(Nov); 13:30 USD Import Price Index (MoM) and (YoY)(Nov), Export Price Index (MoM) and (YoY)(Nov).