Market Highlights
- Will the UK increase QE and decrease sterling demand
- Will risk taking continue to prosper following bullish US GDP
- Euro pullback may turn into reversal should dollar recover
Will the UK increase QE and decrease sterling demand
Last week saw the buyout of Standard Life by Barclays for 266m which started the week off with sterling being bought, this mildly countered the negative GDP Q3 release within the UK the week before. The markets have seen sterling continue to be on the back foot against most majors. With UK data thin on the ground last week, we saw heavy swings via fundamental releases from the Eurozone and America. The positive US GDP figure was the main driver on Thursday and caused sterling/dollar to trade up to 1.6570 as risk came back to the market. Over the weekend we have seen sterling being sold off due to profit taking and in preparation to Thursdays Bank of England (BOE) meeting. With the three major economies expected to keep rates on hold It will be all about sterling and whether or no the BOE will vote to extend quantitative easing after the UK saw continued negative growth in Q3. The market is expecting a £25 billion increase but there is talk about the possibility of £50 billion. If we see the latter then sterling could be heavily sold and we could test the low 1.60’s. The main thing to look for this week is the statement afterwards which will set the tone for November.
Will risk taking continue to prosper following bullish US GDP
The dollar dropped to a fresh 14-month low against the euro last week striking levels around $1.5060, however, the greenback later regained its strength due to the price of oil falling almost $2 per barrel to $78 and Gold falling 1% to $1,054.45. US consumer confidence was seen to rise but was nowhere near expectation and the nelson survey reported a 4 point increase to 84 from July but only a reading above 100 is considered inflationary or optimistic. We saw risk aversion early in the week as sterling/dollar traded between 1.6250 and 1.6410 as all eyes were eagerly awaiting the Q3 GDP figure to set the tone for the global economic recovery leading into 2010. We saw US stock markets decline late on Wednesday and an aggressive sell off with the main culprit being US new home sales down 3.6% from September. US Q3 GDP was expected to be 3.2% which came out at 3.5% and risk came back to the market which saw sterling benefit. This week has a whole host of US data and with the rates likely to be kept on hold this week, manufacturing, housing and employment data will determine the path of the US dollar as we move through Q4.
Euro pullback may turn into reversal should dollar recover
Worse than expected european jobless claims rose 26k month on month last week, this put the euro under pressure and for most of the week traded between 1.0950-1.11 GBP/EUR and 1.4750-1.5060 for EUR/USD. The move to above 1.50 was due to the dollar sell off late on Thursday as risk taking came back into play and sterling was the main benefactor as we saw GBP/EUR test a new 6 week high at 1.1203. This weekend has seen some profit taking on the back of these two big moves, this weeks focus being on the ECB rate decision and statement that follows, coupled with US dollar recovery as risk aversion comes back amidst preparation to the three Interest rate decisions.
By Tom Georgeson, FX Dealer
Trackback: | Share this article:
