Euro rumours and Chancellor surprises
Data from Europe was fairly light on the ground yesterday and as a result, the single currency was a victim of losses versus its most traded counterparts due to rumors that the European Central Bank (ECB) could undertake unconventional monetary easing measures.
Against Sterling, we witnessed the pair retest the higher levels following the Euro gains from Tuesday which amounted to almost one per cent. Similarly, versus the Dollar, we saw sharp declines on the European trading session and the pair, once again, fell below what is proving to be a significant level of support and resistance. Both pairs look largely range bound for the time being whilst we await concrete news from the ECB that they will go ahead and cut both the deposit interest rate and extend the quantitative easing programme.
A spanner in the works could be the geopolitical tensions which are widely publicised in the news. Over the years, the resilience of the Euro has been in no small part a direct result of being given a safe haven status when nations are in the midst of terror threats or all-out war. Given the ongoing problems in Syria and alike, this could hamper the Eurozone’s chances of successfully reviving the economy. Whilst the single currency is not a natural safe haven, it has most certainly been displaying safe haven properties this year.
In the UK yesterday, the focus was on the Autumn Statement in which the Chancellor of the Exchequer, George Osborne, addressed the House of Commons and delivered a very optimistic spending review. Amongst the headlines were a borrowing forecast of £73.5bn this year, falling to £49.9bn, £24.8bn and £4.6bn in subsequent years before hitting surplus in 2019-20. The improvement in public finances announced are due to a combination of better tax receipts and lower interest payments on debt. Whilst initially well received, causing Sterling to buoy against the Euro, the figures will be analysed in greater detail by investors in due course.
The US had a raft of economic data released yesterday, with inflation, spending, services, manufacturing and employment numbers all released. US services activity rose to a seven-month peak, core durable goods was at a three-month high and jobless claims were at the lowest level in a month – there is no doubt that the US economy is moving in the right direction. Unfortunately, the issue of inflation is likely to remain crucial with the Fed’s favoured measure, the core PCE price index, failing to grow for the first time in ten months. Given that this measure removes food and energy factors, it is clear that the results may not solely be attributed to the price of oil. Today the US markets are shut for Thanksgiving, so Dollar payments will be suspended until Friday.
As the US market is closed and economic data is sparse, we’d like to draw your attention to an interesting article by Lesley Batchelor, OBE and Director General of the Institute of Export, on the subject of Export Growth for SME’s. You can find the article on page 6 of the Entrepreneur magazine which is supplied with today’s copy of The Guardian.