Morning Report: 24 November 2016

24th November 2016 By: Ranko Berich

GBP Sterling rallied sharply yesterday following the Autumn Statement, strengthening against all G10 currencies. The Statement was considerably more austere than initially expected, with the £122bn increase in borrowing during the next 5 years being below expectations. Moreover, despite heavy speculation to the contrary, the corporate tax rate was left unchanged from the pre-Brexit downward revision to 17%. Instead, fiscal discipline appears the main target of Chancellor Philip Hammonds tenure. Nonetheless, the budget was clearly well received by the market, which, combined with the apparent favouring of a “soft Brexit” stance from Prime Minister Theresa May, helped the pound to a 10-week high versus the euro. No data will be released today in the UK.

EUR The euro fell again yesterday against EUR and GBP, but is recovering some of the losses at the time of writing. Although there has been an absence of specific events triggering the euro to weaken, the currency does continue to be generally weighed down by concern over political and central bank events that take place over the next two weeks. The Italian referendum on the 4th of December is the next milestone for the future of the euro, and the European Central Bank meets the week after, after Draghi pledged to continue the central bank’s monetary policy programme beyond the current deadline. The German GDP was published earlier this morning in line with expectations of 0.2% quarter-on-quarter. Peter Praet, the ECB’s Chief Economist, will speak today at 16.10 BST.

USD USD continues to rise after strong data yesterday, and the release of the Federal Open Market Committee last night. In fact, the Bloomberg Dollar Index, which is comprised of a basket of currencies against the USD, reached a 13-year high this morning. The move was given initial impetus after Durable Goods Orders data in the US yesterday jumped 4.8% in October, well above consensus forecasts of 1.7%. Then, later in the afternoon, the minutes were released from the most recent Federal Reserve meeting on interest rates. The meeting took place before the US election, and with “most” members now seeing a “relatively soon” rate hike being appropriate in the absence of “near-term risks”, and the US election having subsequently avoided causing the market turmoil that many had feared, the market has now all but priced in a rate hike at the Fed’s next meeting. With today being Thanksgiving the US markets will be closed.

CAD The loonie is on the back foot again today after a surge in the dollar yesterday and headlines indicating that Russia will not participate in a crude production cut. Headlines surrounding the OPEC are becoming a nuisance for crude oil traders and, as a result, the reaction was muted. Crude oil inventories unexpectedly fell yesterday, but it did not have major consequences for CAD.