With no data releases in the UK yesterday, the market continued to react to political developments. The prospect that the Conservatives Party are on course to gain a majority in the upcoming election helped the pound gain strength yesterday against both the euro and US dollar.
The pound reached a high on the interbank exchange rate of 1.1722 against the euro and 1.2912 against the US dollar, during yesterday's trading. Analysts believe a Conservative majority would more likely result in a soft deal Brexit being passed through Parliament rather than a no-deal Brexit, which has always been seen as the worse case scenario. If PM Johnson is to be believed, his Brexit deal could be put to Parliament before Christmas.
With only 16 days to go to the elections on the 12th December 2019, more attention will be focused on developments surrounding the political parties. Former Prime Minister Tony Blair yesterday did however state, “this election is the weirdest in my lifetime”.
UK gross mortgage approvals are released later this morning which are currently forecast at 43.1k. This reports the number of new mortgages approved by high street banks during the prior month and will provide information about the state of the UK property market. If we see this reading come in stronger, it could help strengthen the pound further.
German Business Expectations released yesterday morning came in lower than expected at 92.1 versus a forecast 92.5 and German Ifo Business climate index for November came in line with expectations at 95.0. Eurozone data continues to struggle to gain confidence in the market showing limited signs of recovery following months of slowdown. Lee Hardman, FX strategist at MUFG London said “The economic signals looks worrisome and the Euro continues to trade on a weaker bias against the Dollar”.
The new European Central Bank president Christine Lagarde first major monetary policy speech provided little new information on the policy outlook other than the fact it is under review. Today the European Central Banks’ Benoit Coeure and Luis De Guindos speak. Their speeches often contain indications on the future possible direction of monetary policy, which could affect the value of the euro. However, given Lagarde’s lack of new information, we may not see any significant market-moving comments from them.
The US dollar continues to be driven by the US-China trade negotiations. The negotiations have been looking more positive recently following a positive “Phase One” trade deal being discussed between President Trump and President Xi. China promising to make penalties harsher on intellectual property violations could also help further negotiations.
In the US, Fed Chair Powell speech did not show any deviation away from the Fed’s current stance on monetary policy. President Trump continues to rally for more interest rate cuts to stimulate the US economy and stave off any slowdown, however it is unlikely that the Fed will make any further interest rate decisions until they see how the US economy reacts to the three reductions already seen this year.
Later this afternoon a series of US data releases are announced. The main focus will be on the Conference Board’s consumer confidence figures which measures the level of confidence consumers have in the US economy and is forecast at 126.9 versus a previous reading of 125.9. Any figure above will be viewed as positive and could strengthen the US dollar. US new home sales will also be closely monitored to see if they exceed the forecast figure of 709k to bolster the dollar.
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