Daily Forex Commentary
29 December 2017 - US Dollar at a fresh 3-month low; on track to lose almost 9% in 2017. GBP and EUR end the year with positive momentum.
By Nick Parsons
Friday 29 December
British Pound (GBP)
Like its cricketers, the British Pound had a much better day than might have been expected on Thursday, lagging behind the EUR and CAD but gaining against all the various dollars. It reached a best level of USD1.3454 early in the London morning but after a 25-pip retracement was back up to the highs in the New York afternoon; overnight it has extended gains up to 1.3465; its best level since the EU/Irish/Brexit deal spike back in early December. The strength in the GBP comes despite some pretty weak figures on UK housing market activity. British banks approved the fewest mortgages in 15 months in November, when the Bank of England raised interest rates for the first time in more than a decade. Banks approved 39,507 mortgages for house purchase last month, down from 40,417 in October and 5% fewer than in November 2016, trade association UK Finance said yesterday. More comprehensive lending figures from the Bank of England are due next Thursday and despite the Chancellor’s attempts to boost the number of first-time property buyers, it is very unlikely there will be any significant pick-up, if at all, until later in the Spring. A recent survey from the Royal Institution of Chartered Surveyors said that activity in the housing market remained subdued in November and that homeowners were holding off moving unless absolutely necessary for reasons such as death, divorce or new employment. New instructions to sell fell for the 22nd month in a row, while the number of sales agreed fell for the third consecutive month. The pound opens in Europe this morning at USD1.3465 with GBP/EUR unchanged from yesterday morning at 1.1265 and GBP/AUD at 1.7265. On this last full working day of the year, we wish all our clients a happy, peaceful and prosperous New Year 2018.
US Dollar (USD)
USD/GBP expected range: 1.3430 – 1.3530
The US Dollar is once again lower. Last week its index against a basket of major currencies fell from 93.50 to 92.85 and it has now fallen every day since Christmas. After a very brief opening rally on Tuesday, the index fell to a 3-week low of 92.73. On Wednesday in Europe it traded down to 92.51; the lowest level since December 1st and yesterday in New York it hit 92.24; the weakest since September 25th. After the briefest of rallies overnight in Asia, it is down to 92.20 at the London open this morning. With just one trading day left in 2017, the USD index against a basket of major currencies is on track to lose just almost 9%; the first annual decline since 2012. Its high for the year was way back on January 3rd when EUR/USD hit a low of 1.0341. Since that point, the euro is now up more than 13%, its biggest advance since 2003, and is the largest G-10 gainer against the US currency this year. Today, of all days, brings the potential for some big price swings; the end of the month, the quarter and the calendar year when global portfolio hedges are rebalanced to account for relative performance changes. To some extent the high correlation of assets across geographies should reduce the need for portfolio rebalancing but with a long weekend ahead, this may be the time for clients to lock-in their FX needs if the levels are attractive. Away from the fluctuations in currencies, we offer a word of warning for any clients planning to visit the US for New Year. An arctic blast has sent most of the US Northeast and Midwest into a deep freeze that has set record lows in several places. For most of the region encompassing New England, northern Pennsylvania and New York, the National Weather Service issued wind chill advisories or warnings as temperatures were expected to be below 10 degrees fahrenheit in a wide area. For upstate New York, east of Lake Ontario, the NWS warned of “dangerously” cold wind chills of minus 5 F to minus 30 F through Friday, whilst Erie - a city of about 100,000 on the shores of Lake Erie in northwest Pennsylvania - is already buried under more than 65 inches from a record-breaking storm earlier this week. Wrap up warm this weekend… The US Dollar index opens in Europe this morning at a 2-month low of 92.20. The 2017 low was 91.00 on September 5th…
European Euro (EUR)
GBP/EUR expected range: 1.1240 – 1.1285
The EUR finished equal top of the FX pile with the CAD on Thursday; rising almost three-quarters of a cent from Wednesday’s New York close to reach a high of USD1.1958; matching the best level it touched on November 27th. Overnight it eased back very slightly to 1.1938 before rallying back to 1.1955. The ECB’s Monthly Economic Bulletin expanded on the thinking outlined in the latest staff projections presented at the last Council Meeting. It is perhaps the most upbeat assessment in recent memory. “The euro area economic expansion continues to be solid and broad-based across countries and sectors. Real GDP growth is supported by growth in private consumption and investment as well as exports benefitting from the broad-based global recovery. The latest survey results and incoming data confirm robust growth momentum in the near term. Compared with the September 2017 ECB staff macroeconomic projections, the December 2017 projections revised the outlook for GDP growth upwards substantially. Euro area real GDP is foreseen to grow by 2.4% in 2017, 2.3% in 2018, 1.9% in 2019 and 1.7% in 2020.” For today, the EUR opens in Europe this last day of the year at USD1.1955, GBP/EUR1.1265 and AUD/EUR0.6530. Its high for the calendar year 2017 so far has been USD1.2036 on September 8th.
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