Hawkish Fed helps Dollar higher

9th November 2018 Market Update

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?? USD - The Dollar decline after Tuesday’s midterm elections lasted all of two days like this morning it is once again well bid following yesterday’s Federal Reserve meeting. At the meeting the Fed maintained ‘economic activity [had] been rising at a strong rate’ with a GDP growth average of 3.3% per cent for the first three quarters of 2018. As a result of this, the Fed confirmed the economy was well on track to confirm an interest rate hike in December as well as a further two or three hikes in 2019. Away from the Fed, US labour data indicated initial jobless claims dropped by 12,000 to a seasonally adjusted 215,000, in line with economists’ estimates. This news, alongside a solid US economy, means the Dollar story looks upbeat as we head into 2019.

?? GBP -  Today's big data release was the UK Q318 GDP for which consensus expected a strong 0.6% QoQ growth which came out in the line causing Sterling to remain fairly static in the immediate aftermath. But as we have mentioned previously, with Brexit continuing to rumble on in the background, the overall Sterling gains remain limited and so even if GDP data had come out a great deal higher, we would have only seen the Sterling increase so much. What would see it shoot up is official confirmation of all the rumours we have heard suggesting that a Brexit deal is effectively done, but again – this would need to get through parliament for us to see an even larger move up. As a point of interest, Aberdeen Standard Investments are betting that Sterling could climb to $1.50, a level not seen since the 2016 vote, within three months of a divorce agreement passing through the commons.

?? EUR - For the Euro, the latest update in the “negotiations” between the EU and Rome over Italy’s budget deficit involved the European Commission forecasting that the Italian economy would grow more slowly than Rome thinks over the next two years. This would lead to much larger budget deficits than those which has been assumed by the Italian government. In response, the Italians simply dismissed this assessment on the basis that the European Commission did not have a proper understanding of the Italian economy. With neither side willing to budge, the euro looks set to remain downbeat having already fallen by 4.2 per cent against the Dollar in the last six months.

 

Summary:
USD: Federal Reserve keeps rates on hold, but hawkish comments give return to Dollar strength;
GBP: UK Q318 GDP data comes out largely in line with Brexit headlines likely to sway any moves over the weekend;
EUR: European Commission claims that Italian growth figures don’t add up; dismissed by Italy.

 

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