The Pound in Limbo, Dollar Continuing to Struggle and the Euro in for a Difficult Week

GBP

Yet another rangebound week for the pound against the euro as it traded in a one and half percent range between 1.0931 and 1.1096. The price action has been driven as always by Brexit headlines though it feels that we are inches towards a deal as Emmanuel Macron was reported to concede his hard stance on fishing rights and if true could leave state aid as the final Brexit hurdle. Boris Johnson’s claim that he was ready to walk away from Brexit negotiations last Friday now looks like he was just applying pressure as both sides look to scramble for a deal. Against the dollar, the Pound finished the week just under a percent up as the dollar struggled as investors sold the Greenback across the board. On the data side, CPI came out at the expected level of 0.5% and though way below the BOE 2% target it is an improvement from last month’s figure of 0.2%. The other key data came on Friday morning with the release of the Services PMI number reported at 52.3 versus an expected 54.0, though lower than the consensus and number above 50 shows the industry is expanding.

Analyst are predicting another week in limbo for the pound against the Euro as the trade negotiations are fully priced in and the expectation for them to continue into mid-November. Any movement against the dollar will largely be a knock-on effect price action in the most traded currency pair EUR/USD. A longer-term view of the Pound is still predicting that there is far more downside risk the pound as there is upside potential but as a deal is the more likely of outcomes this is to be expected. With no big hitting data coming this week, the pound is going to be at the sole mercy of Brexit headlines.

USD

The dollar was the worst performing major currency last week with markets pricing out any chance of Donald Trump making a comeback and winning a second term as President. A combination of Joe Biden’s heavy spending plan and the Fed’s plan to overshoot the 2% inflation target before raising rates is taking its toll on the Dollar. Most analysts are predicting further long-term weakness for the Greenback if a Biden presidency comes to fruition. The main talking point from last week was of course the Presidential debate on Thursday evening, though this time it was a much tone down affair. Biden managed to hold up under fire and avoid any major slip up which would have played into the Republican rhetoric.

This week the Dollar will continue to be sensitive to the polls as a late surge by President Trump would not be unexpected. It’s important to remember that polls showed a Clinton victory at the last election and she also won the popular vote in the US but this did not lead to her winning due the electoral college system. On a data front, markets will be watching on Tuesday and Thursday with the release of durable goods orders and annualised GDP. The GDP figure should report a massive 35% increase due to annualised nature of the data but Trump’s Whitehouse will likely use this to drive home the economic prowess to the American electorate.

EUR

Last week was the strongest week for the Euro against the Dollar since July as it closed out at 1.1858, which was a gain of 1.3%. Though this price action was mainly due to Dollar weakness rather than Euro strength. There was a pleather of speeches from the ECB president Christine Lagarde and other central bank officials over the course of the week though this did not have a major effect on the common currency. Eurozone market composite PMI was released on Friday just above the expectation at 49.4 showing a slight contraction in the economy. The Euro manged to get through the release unscathed and keep the pressure on the Dollar.

This week is likely to be much tougher for the Euro as it faces 3 main challenges. Today will see the releases of German confidence figures, as Germany is the biggest economy in the eurozone investors will be paying close attention to the current mood. The second challenge is the ECB meeting on Thursday, no change in the rate is expected but a dovish message from Lagarde is anticipated with further plans for quantitative easing before the end of the year. ECB research has shown that a 10% increase in the size of the ECB’s balance sheet relative to the FED could weaken the Euro 3.5% against the Dollar. The last challenge for the single currency is third quarter GDP and CPI figures released on Friday. With fears of the Europe going into a double dip recession, markets will be paying close attention to these figures.