FX market outlook

FX market outlook

Posted on Friday, November 24 2017 at 9:48 am GMT+0000

Euro strong on improved Eurozone sentiment; pound flat as May heads to Brussels

With markets remaining partially closed on Friday for the Thanksgiving holiday week, the dollar was firmer in Asia, gaining on rising Treasury yields. In Japan, however, investors who also had a day off on Thursday, returned to their offices, pushing the yen lower as Japanese and Chinese stocks traded higher after a strong sell-off on Thursday.

The dollar index, which gauges the dollar’s strength against six major currencies, rose slightly from two-month lows on Thursday to 93.19 as US Treasury yields inched up late on Thursday. However, concerns over a persistent low inflation signaled by the Fed meeting minutes on late Wednesday and echoed by the Fed chair, Janet Yellen, on Tuesday continued to pressure the currency despite high expectations on a rate hike in December. Against the yen, the greenback was 0.26% up at 111.51. Safe-haven gold stood flat at $1,290.13 per ounce.

With economic releases lacking important US data today, the focus next week will turn to the next Fed chair, Jerome Powell, who will give a key speech in the Senate on Tuesday as well as to any encouraging updates regarding the US tax reforms which could give a lift to the dollar.

The euro held onto gains due to positive sentiment on the Eurozone’s economy following yesterday’s upbeat European business surveys on manufacturing and service industries. Readings on German Ifo business climate index released during early European trading hours today might also bring some volatility to the single currency today.

On the political front, German senior politicians pressured Merkel’s former coalition partner, the Social Democrats, to rethink forming a renewed coalition after they went into opposition in September’s elections. Yesterday afternoon, the leader of the SPD party, Martin Schulz attended a meeting with President Frank- Walter Steinmeier, who put efforts to resume coalition talks, avoiding the call of new elections for now.

Euro/dollar was moving sideways around 1.1843 during the session. Euro/pound was also flat at 0.8900.

In the UK, attention shifted back to Brexit developments after the release of a nonattractive Budget Statement for 2018 which slashed economic growth forecasts for the next four years. The British Prime Minister, Theresa May, will head to Brussels on Friday to meet the European Council President, Donald Tusk, at a summit with Eastern European nations, in an effort to break deadlocked Brexit negotiations and move discussions to future trade relations. But, progress on the talks might be disrupted as Ireland, who threats to veto Brexit talks, is in danger to hold snap elections after the opposition called the Deputy Prime Minister, Frances Fitzgerald to resign over his handling of a police scandal. Pound/dollar managed to rebound before the session-end to 1.3317 (+0.13%) after touching a session low at 1.3277.

Looking at oil prices, WTI crude and London-based Brent extended their uptrend above two-year highs amid expectations that the OPEC/non-OPEC members will agree to extend their supply cuts strategy in next week’s crucial meeting. Moreover, the shutdown of a key crude pipeline from Canada to the US following a spill last week as well as lower US inventories added further gains to oil markets. WTI crude jumped by 1.15% to $58.69 per barrel and Brent rose by 0.30% to 63.72$.