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Deal Optimism Although Differences Still Remain

Deal Optimism Although Differences Still Remain

GBP

UK mortgage approvals hit a 13 year high with 97,500 for October and September’s results were revised upward too. Consumer credit contracted by £590mn and household savings increased by £12.3bn. Lending declined by  5.6% on  an annualised basis, the sharpest decline on record. Bank of England member Tenreyro foresaw vaccine developments easing some of the economic uncertainty, but households may delay spending.

The Irish foreign Minister stated that a trade deal was achievable this week, although tensions remain over fishing and there was no comment from Michel Barnier and it was confirmed that talks will continue over the next few days. Markets overall were still confident that a deal would be reached, but there was much less confidence in the wider UK economic outlook and whether the currency would be in a position to gain sustained support in light of economic disruption even with a trade deal in place.

Sterling failed to test 1.3400 on the Dollar, dropping below 1.3350 amid a wider Dollar recovery and the Euro retreated to near 1.1173. The Pound opens a little stronger, 1.3380 against the Dollar as firm risk appetite provided net support.

 

USD

The Chicago PMI index declined to a 5-month low of 58.2 for November from 61.1 and slightly below consensus forecasts of 59.0. Although output continued to increase, there was a small decline in new orders for the month. Pending home sales declined 1.1% for October following a 2.0% decline the previous month.

The dollar remained under pressure during the European session and the euro hit the 1.2000 level just after the Wall Street open, but there was strong selling interest at this level. There had been expectations that the dollar would weaken into the London fix, but the US currency actually gained ground which was instrumental in triggering a more substantial correction and a US recovery. 

 

EUR

German consumer prices declined 0.8% for November with the year-on-year rate declining to -0.3% from -0.2% and below consensus forecasts of -0.1%. The data maintained expectations of further ECB stimulus measures at December’s policy meeting. 

The Euro strengthened to the 1.1960 area, although there were still reservations over pushing the currency sharply higher as drugmaker Moderna announced that it will apply for the US and European emergency authorization for its COVID-19 vaccine. As positive results continue, stronger bids are coming in for risk assets weakening demand for anti-risk assets such as the US dollar and as such pushing the single currency to high of the 1.20 level.

Data wise for today, the focus would be on the German labor market report and Eurozone’s preliminary CPI reading for November. A big beat on expectations could likely draw more substantial buying pressure for the Euro.

As of writing, the Euro currently trades at the 1.1965 mark against the Dollar.  

 

Data to watch

10:30 – GBP – Final Manufacturing PMI

16:00 – USD – Fed Chair Powell Testifies 

16:00 – USD – ISM Manufacturing PMI

18:00 – EUR – ECB President Lagarde Speaks 

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