GBP surges, US re-iterates' lower for longer' strategy
Stock markets smashed through highs as a 90% effective vaccine looks likely to be widely available in the near-term, although it needs to be stored at around -70 degrees (which brings plenty of logistical challenges) alongside the production rate .. with timeline for enough production availability for the global population stretching into Q4 2021. Nonetheless, a pivotal moment for an unprecedented time.
GBP: A strong performance through today saw GBP/€ trade around the critical 1.1250 mark before retreating to 1.1200 in afternoon trading. GBP/USD broke through 1.3200 for the first time since August. The rise was accentuated by market re-positioning, but spurred by ‘optimistic’ chatter regarding Brexit (also by EU negotiator Barnier) – specifically that the UK was open to compromise on fishing rights. UK monthly jobs report then showed claims dropped by 29.8k in September – a positive surprise to the market.
Please note on Thursday we have UK GDP data alongside other releases, and 2 important speeches from the Bank of England will round off a week already dominated by Brexit headlines
USD: The Fed kept rates on hold as expected in November, as widely expected, the FOMC voted to keep its Funds Target Rate in the range of 0.0-0.25%. The Fed also maintained its recently adopted new strategy of Average Inflation Targeting - effectively confirming its stance to keep interest rates low for a prolonged period. It continued to highlight the path of the economy will continue to depend significantly on the course of the coronavirus (COVID-19) outbreak.
Powell was cautious in his assessment of the US economy as he noted in recent months pace of improvement in economy has moderated as have the pace of improvement in job market. He repeated the outlook for economy is extraordinarily uncertain and the recent rise in COVID-19 cases is particularly concerning. He also revealed that the Fed plans to make changes to economic projections in December – which makes that announcement very important for the path of the USD.
Fed member Kaplan also stated that negative rates are “off the table” for the Fed, which means that fiscal stimulus will be the order of the day, and inflation targeting will play a key role in the Fed’s actions going forward.
EUR: Having recently benefitted from a weak GBP and weak USD (EUR/USD still at recent highs at 1.1800, having trade at 1.1900 last week), the impact from widespread lockdowns will continue to weigh on the single currency, and data this morning suggested a sluggish overall performance. Thursday this week sees plenty of important data and speeches from key decision makers. Outside of Brexit headlines, this Thursday will drive the EURO direction throughout Q4 2020.
New Zealand / Australia: Although Australia and New Zealand are often bundled together, their divergent paths are clear, as New Zealand is expected to keep interest rates on hold on Wednesday, whilst Australia cut rates very recently (0.25% to 0.10%), forcing AUD to suffer. The market is projecting cuts in early 2021, given the stabilisation of Covid outbreaks and the recent rebound from China.
What’s ahead:
Weds: New Zealand Rate decision / ECB President Lagarde to speak alongside other ECB members
Thurs: UK quarterly GDP, UK manufacturing data / EUR Inflation / EU Economic Bulletin / USA Inflation data
Fri: UK Bank of England Governor speech / EU GDP data / US Fed member speech / US Confidence data