28th November 2018 Market Update
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?? USD – As has been the ongoing theme for the second half of 2018, a strong Dollar is dictating moves in the FX markets again this week as ongoing concerns around the trade tensions between the US and China has investors flocking towards USD. The latest update on this has National Economic Council Director Larry Kudlow indicating that there is a ‘good possibility’ of the two countries reaching an agreement, which could yet cause the Dollar to weaken off its two-week highs. Recent Dollar vulnerability had been caused by a more dovish Fed who has been indicating a slowdown in the pace of future interest rate increases citing slowing global growth, peaking corporate earnings and increasing trade tensions as the primary factors. As part of this, attention is now firmly on today’s speech by Fed President Jerome Powell as the market awaits any new indication on the Fed’s likely path. This is after yesterday’s speech by Fed VP Chair Richard Clarida who was in support of further rate hikes as long as they were supported by the data. One person who will certainly be watching today’s events is President Donald Trump who has repeatedly criticised the Fed, labelling them ‘crazy’ and ‘ridiculous.’ A more hawkish tone from Powell could help the Dollar strengthen further.
?? GBP – The Pound remains towards the lower end of its range as it continues to feel the pressure of Brexit, with the majority of the market expecting that Theresa May is unlikely to push her agreement through Parliament. This is as she continues to tour the country to convince the various parts of the UK of the viability of her Brexit deal. As part of this, she appears to have also enlisted Philip Hammond to beat the Brexit drum as this morning he claimed that May’s plan was the best available given that there was now no way of escaping Britain’s exit from the EU. That being said, he was also clear to indicate that whatever the scenario, in ‘a purely economic sense’ the UK will be worse off out of the EU, rather than in – due to the limitations it will put on trade. Up next, later on, today we will see the release of the government’s economic analysis of the long terms effect on Brexit – the worse the indication, the greater the likelihood we will see Sterling fall off again having hit new two week lows yesterday.
?? EUR – Without wanting to bore our readers, the Euro continues to show a risk towards the negative side due to a continued indication of a weak Eurozone, and ongoing tensions between the European Union and Italy. As part of this, EUR/USD hit new lows this morning, breaking below the 1.13 for the first time in two weeks as reports indicate that Brussels will bring forward its disciplinary action against Italy. This is despite Deputy PM Luigi Di Maio indicating only moments ago that his government is keen to have a dialogue with the EU over its budget. He was also clear to indicate that they could not betray the promises that were made to the Italian people. As the Euro remains likely to move on such headlines, the data continues to paint a sorry picture across the EU; a case in point – this morning we saw data from the ECB that indicates that corporate lending growth slowed in the Eurozone last month as the weakening economic outlook begins to impact firms’ ability and willingness to borrow.
USD: Nothing new for the Dollar as it continues to be affected by US-China tensions, as well as the Federal Reserve’s likely interest rate path;
GBP: Brexit the only factor in terms of the broader Sterling outlook;
EUR: A lack of growth continues to haunt the Eurozone, as Italian budget negotiations drag on with little to no progress.
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