Draghi to stimulate, Yellen to hike and Osborne wants to borrow a fiver
The single currency weakened against the Greenback on Friday amid growing expectations of further stimulus measures from the European Central Bank (ECB). Its President, Mario Draghi, stated that “ECB monetary policy measures have clearly worked; growth momentum remains weak and inflation remains well below our objective of below, but close to, 2 percent.” He also added “we will act by using all the instruments available within our mandate; if we decide that the current trajectory of our policy is not sufficient to achieve our objective, we will do what we must to raise inflation as quickly as possible.” This is widely interpreted to mean that there will be additional stimulus in December.
As a result, the Euro actually firmed up versus Sterling as the pair closed the day 0.5 cents up on the high of the day. Against the Dollar, however, we witnessed quite the opposite as the bloc currency found itself on the back foot. Daily losses amounted to around 0.75%.
Sterling’s fall versus the Dollar on Friday marked a continuation of the “lower peaks” pattern seen on the daily chart since late August. Sterling moved lower on the back of weaker public sector finances as Friday’s borrowing report was the worst in six years and shows that the government is significantly behind their 2015-2016 borrowing projections. Lower tax receipts and higher government spending are to blame.
After last week’s reports including retail sales, fundamentally, Sterling should be trading lower and not higher but Sterling traders need to watch EUR/GBP because the trading flows have been keeping GBP supported. Sterling traders will look forward to a hearing of several Bank of England (BoE) members, including BoE’s Carney, before a UK Treasury Committee on Tuesday.
Last week’s Fed minutes made it clear that a US rate hike should be expected in December and the US calendar is very busy until Wednesday. Trading in the US will be very light towards the end of the week – on Thursday the US market will be closed for Thanksgiving while on Black “shopping” Friday the stock market will close early. This won’t have a major impact on trading as US data won’t change the views of the FOMC governors as such. The payrolls next week will be the last key release before the FOMC meeting and no Fed governors are scheduled to speak this week.
Data to watch: Today at 3pm US Existing Home Sales. Tuesday, 7am German GDP, 9am UK Inflation Report Hearings, 1.30pm US GDP. Wednesday 1.30pm US Personal Income & Personal Spending, Durable Goods Orders, Initial Job Claims, 2.45pm Markit Services, 3pm New Home Sales. Thursday US shut for Thanksgiving. Friday 9.30am UK GDP.