ExchangeRates.org.uk - The dollar lost ground on Wednesday with position adjustment a significant factor ahead of Thursday’s US Thanksgiving Holiday.A key question is whether the dollar has peaked or whether it is a short-term correction.
MUFG expects renewed currency gains; “Despite some signs of a softening dollar there are also plenty of reasons to believe further dollar strength still lies ahead.”
The Euro was boosted by hawkish comments from ECB Council member Schnabel with the Israel-Hezbollah ceasefire also helping to support the single currency.
As far as the UK is concerned, the latest rhetoric from central bank speakers maintained strong expectations that the Bank of England will hold interest rates at 4.75% at the December policy meeting.
Scotiabank (TSX:BNS) commented; “Markets continue to price in around 80% risk of a 25bps cut in February, with the Bank widely expected to take a pass at the December decision.”
The Pound to Dollar (GBP/USD) exchange rate posted a strong advance to around 1.2650.
According to Scotiabank; “Short-term gains could extend to the mid/upper 1.26s but a move through 1.2715 resistance is needed to inject a little more technical strength in the near-term outlook.”
The Pound to Euro (GBP/EUR) exchange rate settled around 1.1980.
ING expects solid underlying Pound support; “With one-week deposit rates at 4.75% and the highest in the G10 space, sterling may be deriving some inflows as the market makes up its mind about the speed and magnitude of Trump's policy agenda.”
As far as US data is concerned, initial jobless claims declined to 213,000 in the latest week from 215,000 previously and just below consensus forecasts while continuing claims increased to 1.91mn from 1.90mn last week.
The core PCE prices index increased 0.3% for October, in line with consensus forecasts, and the year-on-year rate edged higher to 2.8% from 2.7%, also in line with expectations.
Markets are pricing in a 65% chance of a further rate cut at the December policy meeting.
Scotiabank commented; “Decent growth and a pick-up in PCE price data combined may dampen expectations for a Fed ease next month at a time when policymakers already appear to be turning a bit more cautious on the rate outlook—reflected in yesterday’s minutes for the November FOMC.”
It added; “Firm data, Fed caution and Trump’s tariff threats combined will bolster prospects for the USD’s late year strength to persist into December.”
The outlook for US trade policies remains a key element in markets.
MUFG commented; “We continue to expect Trump’s approach to trade tariffs to be very different to his first term in office with a more aggressive stance evident, possibly from day one.”
President-elect Trump announced on Tuesday that Jamieson Greer as the US Trade Representative.
According to MUFG; “Greer is a protégé of Robert LIghthizer and is a strong supporter of trade tariffs, as you would expect.”
This content was originally published on ExchangeRates.org.uk