Sterling continues to fall against Dollar
UK headline consumer inflation held at 1.5% growth in November, just beating the forecasted 1.4% and core CPI remained at 1.7%. The data had little impact as the Pound was a little unsettled by fresh reservations over the Brexit process next year. Sterling also failed to gain support from improved global risk conditions. The Euro hit selling interest below 1.1765 where it settled by the end of play and the Pound dipped to lows of 1.3060 on the Dollar.
The Bank of England will unveil the interest rate decision around lunchtime, and although the rate is unlikely to change the voting detail will be key after two votes for a cut at the previous meeting. The forward guidance will also be significant and most of the media airtime will be devoted to today’s Queen’s speech.
Following comments from US Trade Representative Lighthizer, there were fresh concerns over the risk of President Trump and the US Administration targeting the EU over trade next year.
New York Federal Reserve (Fed) President Williams reiterated that the central bank is data-dependent in policy actions. According to Williams, there were still significant risks to the downside due to trade and geopolitical uncertainties and he would change his outlook if there was a material change in the economic outlook. There were expectations that the Fed would let the economy run hot. Chicago head Evans stated that he did not anticipate that further cuts in interest rates would be required, but that inflation would need to go meaningfully above 2% to support monetary tightening.
The dollar edged lower against commodity currencies, but the Euro under-performed as it dipped to around 1.1110 before a slight recovery to near 1.1130 on Thursday.
German IFO business confidence hit a 5-month high of 96.3 in December beating the forecasted 95.5. The current conditions and business expectations components both improved since last month. Despite further weakness in manufacturing companies were much more optimistic over the outlook while confidence in the services sector hit a 6-month high which underpinned recovery expectations.
ECB member Coeure opposed lowering the European inflation target and the central bank could communicate a range of alternative outcomes. German bond yields increased and spreads moved in the Euro’s favour, but the currency was unable benefit. Despite the Dollar edging lower against commodity currencies the Euro under-performed and dipped to 1.1110 before edging up to 1.1130 at market open.
Data To Watch
09:30 – GBP – Retail Sales
12:00 – GBP – MPC Official Bank Rate Votes
12:00 – GBP – Official Bank Rate
12:00 – GBP – Monetary Policy Summary
13:30 – USD – Philly Fed Manufacturing Fund