European Caution

22 November, 2016

The dollar took the anticipated breather yesterday, but the overall tone remains firm, especially against the swiss franc and also the yen, together with the single currency. Sterling continues to put up a decent fight, nudging back up against the 1.25 level on cable, whilst EURGBP is bouncing off support at the 0.85 area. Stocks are also putting up a decent run, the S&P hitting a new all-time high yesterday. Naturally, European stocks are a little more circumspect in this environment, whilst the push higher on the Nikkei is mostly down the weaker tone seen on the yen. Trump has again re-iterated his intent to pull out of the Trans-Pacific Partnership trade deal when he takes office, which is one of the reasons why Asian emerging market currencies have been hit more than most in the post-election environment.

The reservations in Europe could well continue until the Italian constitutional referendum early in December (Sunday 4th), which is seen as the next major test of the European project. Some are billing this as having consequences for the future of the single currency itself, but we’ve had many of those moments before, so the euro could well be a little more circumspect about the more bearish scenarios. Before then, we have the UK Autumn Statement tomorrow, which these days is more like a mini-budget. Most significantly, the latest forecasts for growth and borrowing will be released by the independent OBR, which will reflect the anticipated slower growth path as a result of the Brexit vote earlier this year. This could induce some sterling volatility. Before then, we have UK borrowing data today, with US existing home sales data later at 15:00 GMT.


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