Sterling on course for best month in 8 years, US Dollar touches fresh high

Meanwhile, the Japanese Yen slipped to a fresh eight month low against the US Dollar as investors continued to ramp up expectations for an interest rate hike by the Federal Reserve next month. Financial markets are currently pricing in excess of a 95% chance of a rate increase by the FOMC in December.

Among emerging markets, the Central Bank of Turkey raised interest rates for the first time in nearly three years on Thursday. The rate was hiked by a more-than-expected 50 basis points in a bid to protect the Lira which has lost around 14% of its value against the US Dollar so far this year. The Lira has fallen sharply in line with our forecasts since Donald Trump’s election victory.

Today looks set to be a relatively quiet end to the week. This morning’s revised third quarter GDP numbers in the UK are expected to remain unchanged at 0.5% on the previous quarter. Investors will already have one eye on a very busy December month, which kicks off with the Italian constitutional referendum on 4 December. Both the ECB and Federal Reserve monetary policy meetings are also shaping up as major event risks.

Major currencies in detail

GBP

The Pound traded within a narrow band against both the Dollar and the Euro on Thursday, with little new economic data out in the UK leading to a relatively quiet trading session. Sterling ended the London session 0.3% higher against the Dollar.

Mortgage approvals came in above expectations yesterday. Approvals jumped to 40,900 in October from 38,700 recorded in September. The increase is very likely to have been driven by the Bank of England’s decision to cut interest rates to a record low 0.25% at their August meeting.

However, an impending stagnation in household real incomes, largely due to soft employment growth and a Sterling-induced increase in inflation, suggest that approvals will remain low this year. The Institute for Fiscal Studies (IFS) warned yesterday that UK households would face their worst period of earnings growth since the Second World War.

The third quarter GDP numbers will be released at 09:30am this morning.

EUR

The Euro remained pinned under the 1.06 level against the US Dollar yesterday, with growing concerns over the political backdrop in the Euro-area keeping the currency firmly under pressure. The common currency ended the day 0.25% higher.

Senior ECB policymaker Victor Constancio spoke on Bloomberg TV yesterday, hinting at an extension in the central bank’s quantitative easing programme beyond the March 2017 end date. Constancio claimed the central bank will maintain its expansionary monetary policy stance, amid heavy speculation that ECB chief Mario Draghi will announce an extension in the programme at next month’s central bank meeting.

The monthly business sentiment indexes out of Germany were fairly mixed yesterday. The main business climate index dipped to 110.4 from 110.5, although the current assessment index increased more than expected to 115.6 from 115.1.

Industrial production and retail sales figures in Italy are unlikely to shift the Euro today. The single currency will therefore likely be driven by events elsewhere.

USD

There were no economic data releases in the US yesterday, with markets closed due to the Thanksgiving holiday. The US Dollar subsequently ended little changed against its trade-weighted basket of currencies, dipping 0.3%.

The preliminary services and composite PMI numbers from Markit will be the only economic releases of note in the US this afternoon. The next major economic release will be next Friday’s nonfarm payrolls release.

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