The relative political calm in the aftermath of Article 50 has triggered a further squeeze of GBP shorts positions, and traders are buying Pounds to close the positions. With the Euro under pressure as the market adapted positions for a prolonged period of easy European Central Bank (ECB) policy, the GBPEUR rate hit 1.1664 by close of play. The short-squeeze of Sterling against the Dollar was less aggressive, especially as the Dollar gained momentum later in the session. GBPUSD finished the session at 1.2468.
Overnight, GfK Consumer confidence stabilised at -6 (-7) as expected. Sterling remained a popular purchase overnight in the Asian market, but the pace of the rebound is slowing. Later today, the third and final reading of the UK Q4 GDP and the Q4 current account deficit will be released. In the current Sterling positive momentum, a good figure could still cause some further unwinding of GBP shorts.
The latest reading of the US Q4 GDP report saw an upward revision to 2.1% from 1.9%, suggesting that the US economy started 2017 on a very strong note. Personal consumption was revised up to 3.5% for the quarter. This was another upward revision for corporate profits, which were up 0.5% in the final three months of 2016.
The stronger consumption data and better corporate profits goes some way to explain the robust job growth. If corporate profits continue to rise then we could see further strength in the US labour market, which could put more pressure on wage growth and on the Fed to hike interest rates, possibly more than the two rate hikes already anticipated by the Fed’s dot plot.
The Euro remains under pressure for the fourth straight session, mainly driven by broad Euro weakness amid reports that ECB’s message from the March meeting was over interpreted by markets. The ECB remains in no hurry to raise rates or resort to tapering this year.
Amidst diminishing hopes of an end to the ECB’s stimulus, divergence between the Fed’s and ECB’s monetary policy outlooks becomes more prominent, boosting the Buck at the expense of the common currency.
Data to Watch: 7:45am FRA EUR Consumer Price Index (EU norm) (YoY) (Mar). 9am GER EUR Unemployment Rate s.a. (Mar), Unemployment Change (Mar). 9:30am GBP Gross Domestic Product (YoY) (QoQ) (Q4). 10am EUR Consumer Price Index (YoY) (Mar), CPI – core (YoY) (Mar). 1:30pm USD Personal Income (MoM) (YoY) (Feb), Core Personal Consumption Expenditure – Price Index (MoM) (YoY) (Feb), Personal Spending (Feb). 2:45pm Chicago Purchasing Managers’ Index (Mar).