GBP/USD is currently trading at about 1.2360, GBP/EUR is trading at about 1.1870, the GBP/USD was seen hitting a couple of 1- month lows on Tuesday on the back of a strong US dollar, not too much of a weak Sterling story, while the GBP/EUR is fairly quiet. These markets are primed for Christmas now, as there’s very little going on, it is very quiet out there at the moment.
The U.S. dollar, which has obviously has been on a fantastic rise since the election of Donald Trump, just gave back a little bit of its gains through Tuesday’s session and through the Asian session overnight. We are looking at why or how this dollar rally could easily come to an end. A lot of it is built around the economics of the Trump politics, in so much that the vast amount of stimulus, the infrastructural spending, the huge amount of inflation that some people are expecting to come through compared to what we’ve had relatively in the past couple of years, but the actually political side of its economics, hasn’t really been priced in.
Furthermore, what I mean by that is, while we’re talking about the good thing (stimulus and the inflation, the likelihood of policy mistakes, antagonistic trade policies against China or Mexico for example), have not yet been priced in, nor has his ability to mess somethings up. So this could be something that signals that the U.S. dollar is ready for a reversal. We are not sure when of course. Donald Trump doesn’t take office for another month or so. So in the grand scheme of things, this is going to likely going to continue U.S. dollar strength, but that January 20th / 21st the inauguration of Donald Trump just sticks in our minds like a sign post.
The market likes to buy the rumor and sell the facts. They buy into something and then when it eventually happens, they start to sell off. They bought into Donald Trump in a huge way as we can see in the equity markets, the U.S. dollar, inflation expectation, but when does that rumor turns into a fact on January 20th. We’ll wait and see whether that provokes some further U.S. dollar selling.
Brexit news out of the United Kingdom on Tuesday was pretty quiet. Theresa May was in front of the House of Commons committee on Brexit, but not really did much for markets. Noises around a transitional deal were positive, but recusant resistant to agree to a deal for politician to have vote on the outcome of the negotiations of “Article 50” deliver bad taste in the mouth.
Moving forward we have Public Sector borrowing numbers from the UK by 09:30 BST, but elsewhere the data calendar is particularly quiet. We do have the Swedish central bank likely tapering their bond buying purchases this morning however.
Oil prices spiked slightly on Wednesday with the International Brent crude oil futures trading at $55.57 per barrel, a ¢22 appreciation. Trading at $53.58 per barrel is the U.S. WTI crude oil futures, appreciating by ¢28. The surge in price was largely as a result of expectations that U.S. crude oil inventory will reveal a draw. Also somewhat responsible is the slower trading that characterizes the holiday season.