Trump like Reagan?
Sterling gained significant support on Thursday, breaking through the 1.1500 level against the Euro for the first time since the beginning of October. The Pound pushed above 1.2550 versus the Dollar; levels last seen just before October’s flash crash.
Theresa May and Donald Trump’s telephone call yesterday affirmed the “special relationship” between the US and the UK. Trump has also invited Theresa May to the White House as soon as practical and said the relationship should mirror that of Margaret Thatcher and Ronald Reagan. Speculation that the UK could forge stronger trade relations with the US during Trump’s presidency has offset the high degree of uncertainty surrounding our impending Euro-exit. With no tier one UK data until Tuesday, the Pound is trading on sentiment and subject to headline risk.
Investors continued to buy U.S. Dollars yesterday, 48 hours after the 2016 presidential election. EURUSD was pushed further south of the 1.0860 level. Instead of mourning, investors have cheered a Trump victory on hopes of tax cuts, fiscal spending and deregulation. Odds for a rate hike after the election have increased from 80% to 84% according to Fed Fund futures. Due to a strong stock market recovery following the election, and a strong jobs market, the Fed has an even stronger case to interest raise rates in December.
US Banks are closed for Veteran’s day today, halting Dollar payments until Monday. Preliminary US Consumer Confidence for the current month is due later along with a speech by the Fed’s Stanley Fischer.
The latest French and Italian industrial production data was weaker than expected with both economies recording a contraction in output for September, maintaining concerns surrounding the underlying outlook. This morning’s German inflation figures met consensus which lead to little change in the Euro.
Recent focus on the Italian referendum due on December 4th has caused concerns of political instability, should the government lose, and is undermining support for the Euro.
Data to watch: 2pm US Fed’s Stanley Fischer speech. 3pm US Michigan Consumer Sentiment Index (Nov).
Bank Holidays: US, Canada, France