No stimulus for stagnant Sterling
Sterling trading was subdued on Friday, still overshadowed by the dovish Bank of England meeting and election polls failing to provide stimulus. Markets remained cautious in light of the underlying uncertainty and Sterling dipped below 1.2800 against the Dollar and failed to gain against a fragile Euro, settling just above 1.1630.
Ratings agency Moody’s downgraded the UK credit rating to a negative outlook citing fears that political paralysis will undermine predictably. Futures market data recorded another modest decline in bets against the Pound, to just below 30,000 contracts. There is now reduced scope for short covering (rapid buying to close bets against Sterling) and the Pound will need positive developments to make headway. Sterling has climbed a little higher this morning but is still close to 1.2800 against the Dollar with UK and global political developments in focus. Also this morning, UK monthly and Q3 GDP, trade Balance and Industrial Production data.
The November US University of Michigan consumer confidence index increased slightly to 95.7 from 95.5 previously with a decline in the current conditions component offset by again for the expectations index. Atlanta Federal RTeserrve (Fed) President Bostic reiterated that the Fed should wait and see on future rate cuts with futures markets indicating only a 5% chance that the central bank would cut interest rates again at the December policy meeting. Overall, the Euro continued to lose ground with lows below 1.1020 as the dollar posted 3-week highs on a trade-weighted basis. CFTC data recorded an increase in short Euro positions which may limit the scope for further selling, although positioning is well below extremes recorded in the second quarter of 2019 and overall dollar long positions declined.
Euro sellers seemed to have found resistance just above the 1.10 mark after a five-day continuous losing streak allowing for a brief phase of consolidation against the Dollar.
The common currency, this morning seems to be wavering up and down within a narrow range as we start a new trading week as markets await fresh updates on the US-China trade front as well as the big economic releases from both sides of the Atlantic. Further, the Euro remains undermined by the outcome from the Spanish General Election. The renewed Spanish political woes will continue to weigh, as the country is set to face a tough time forming a progressive government.
As of writing, the Euro is trading at 1.1016 against the Dollar.
Data to watch
9:30 – GBP – Prelim GDP
9:30 – GBP – GDP
9:30 – GBP – Manufacturing Production