IFX Market Report
Friday 15th December 2017

Market Report

The pound was given a boost early on Thursday as Retail Sales grew much more than expected during November. Attributed to a surge in Black Friday sales, Month on Month sales rose to 1.2%, comfortably ahead of the 0.4% estimate. The Annualised figure rose to 1.5% against a forecast of 0.2%.

Later in the day, as expected, the Bank of England voted unanimously 9-0 to leave interest rates on hold and make no changes to the asset purchase program. The overall rhetoric from the BoE was that domestic data is slowing down towards the end of the year and Brexit remained a big uncertainty.

Also, there no hints given to suggest any plans to speed up the gradual pace of rate hikes previously indicated, the pound recoiled on the news and gave up the early morning gains. However on a more positive note, the central bank were impressed with Philip Hammond’s budget, which they believe will increase GDP by as much as 0.3% over the next few years and the risk of a disorderly exit from the EU has now lessened after Brexit negotiations reached a milestone last week.

GBPUSD opened at 1.3432 and rose to a high of 1.3455 after the retail sales data. After the BoE decision, the pound tracked down to 1.3399 in the afternoon before closing at 1.3430 marking a 0.0% net change day.

GBPEUR climbed to 1.1385 in the morning but gave up gains on BoE comments falling to 1.1340, however dovish comments from the ECB helped the pound break back through the 1.14 level touching a high of 1.1412 as the day came to a close.

Worldwide News

Data in Europe showed Eurozone Composite PMI rose to 58 in December from 57.5 in November, higher than the 57.2 forecast. The Manufacturing element of the PMI figures rose to an all-time high of 60.6 whilst Services beat 56.0 expectations at 56.5.

The highlights of a busy data schedule in the US were Advance Retail Sales well ahead of consensus at 0.8% v 0.3%, Retail Sales Ex Autos and Gas for November coming in higher at 0.8% v 0.4% in October. Export Prices YoY up to 3.1% form 2.7% and Manufacturing PMI beating forecasts at 55 v 53.9.

The ECB, like the BoE made no changes, again as widely anticipated, however they did raise GDP growth forecast for 2018 to 2.3% from 1.8% in last September. The inflation forecast for 2018 was raised to 1.4% from 1.2% previously, on back of higher oil and food prices.

Ordinarily this would have been enough for solid euro gains, but President Draghi stuck to his guns on his accommodative monetary policy pledging to provide stimulus for as long as is needed. Many thought there would be some sort of acknowledgment of the strength of the Eurozone economy by at least commenting on winding back stimulus, but his intentions for the next year remained rigid and with it, the euro weakened.

EURUSD opened well supported at 1.1825 and rose to high of 1.1844 after positive European data, but as investors interpreted the dovish tone of Draghi’s press conference the euro weakened, with EURUSD falling all the way to 1.1773.