Corporate Banking | Global Markets | Dealer Comment

Dealer Comments

Morning Comment 28.11.22

EUR

ECB President Lagarde speaks this week after an uncharacteristically long silence. However, a blog from ECB Chief Economist Lane last Friday is likely to be more interesting. This detailed Lane’s inflation thinking. Lane mentioned the role of margin expansion in current inflation, and issues in returning real wages to positive growth. The Euro is marginally higher this morning against the USD after a poor Asian session in quiet enough news and data events for the single currency suggesting any movement may be driven by large flows. EURUSD continues to oscillate between 1.0250 and 1.0450 while EURGBP is at the lower end of its 0.8600 to 0.8850 range. A developing headwind for the Euro is a weekend of protests in China against zero-COVID policies. Markets do not like the uncertainty the protests present for a large trading partner of Europe. There are also now questions about the future direction of zero-COVID policies, and whether additional damage will be done to domestic demand and the knock on effects for the Eurozone.

GBP

The pound had another good week last week after the decent PMI readings, now trading around 1.21 against the USD. GBPUSD spent the summer around these levels so there is some scope for its rally of late to pause while geopolitical events play out. Talking about geopolitics, Sunak will stress the need to reinvigorate European relationships while also deepening ties in the Indo-Pacific when he delivers his first major foreign policy speech today. The PM will also argue the UK should plan its foreign policy for the long term, matching Russian and Chinese strategies. Data wise this week the UK CBI releases retail survey evidence—the UK consumer is experiencing demand destruction and very negative real wage growth.

USD

The USD is on course to have its worst November on record so far this month. The currency selloff does not seem to be accompanied by a significant shift in the USD relative fundamentals, however and remains the highest-yielding major currency.  This week’s US labour market and inflation data as well as Fed speeches (including  Powell on Wednesday) could add conviction to the view, in a boost to the high-yielding USD. In addition, the market’s global growth optimism has now all but faded in response to the news about Covid returning in China. A renewed weakening of global risk sentiment could boost the safe-haven USD. The data calendar is relatively quiet, the US Dallas Fed manufacturing sentiment survey is of limited interest. Federal Reserve President Williams speaks at the New York Economics Club, Fed Chair Powell’s comments on Wednesday may get more attention, but Williams’ comments (and those of Brainard two weeks ago) are more likely to set out medium-term thinking.

Author: Jake Reihill
Tel: 1800 30 30 03 / +353 (0)1 790 0000

25 Nov 2022

Morning Comment 25.11.2022

EUR

A decidedly mixed run of fortunes for the Euro which has seen it capitalise on dollar woes, up as much as 2% since we saw a healthy beat in PMIs followed by a run of bad data in the US. On the other side of the coin, EURGBP is down 1.5% from its peak before the UK followed on from Europe with a strong PMIs read versus expectations. German GDP this morning paints a reasonably rosy picture for Eurozone growth coming in above consensus at 0.4% QoQ. EURGBP trades back above 86p this morning while EURUSD remains trading around 1.04. Another range trading would be typical of a post-Thanksgiving Friday.

No further data today

GBP

The pound has been one of the strongest performers in G10 over the last few sessions, up as much 2.3% against the dollar since UK PMIs on Wednesday, capitalising on dollar weakness. Top of the range in cable capped by resistance level at 1.2150 before 200d MA at 1.2190 with support around 1.2070. After trading up to 87p post Euro PMIs, we have seen the pound outperform since with EUR/GBP trading as low as 0.8570. This morning we are trading a touch below the 100d MA at 0.8618.

No data today.

USD

Wednesday’s data whipped up a perfect storm for a weak dollar with divergent PMI surprises in the US and Europe/UK. This was then compounded by initial claims coming in to the upside and inflation expectations remaining well-anchored.
All of this points to a more dovish Fed, the sentiment of which was crystallised by the majority of governing council indicating the pace of the hikes will need to step down soon. These developments saw the dollar basket down as much as 2% from Tuesday’s close where it held firm yesterday in a thin holiday market. We have seen a clean break above 1.20 in Cable which sees us trade at 1.2100 currently with resistance at the 200d MA at 1.2190 before August’s double top providing resistance at 1.2245. EUR/USD also broke a notable level into the 1.04 handle but has struggled catch a bid thereafter, topping out at 1.0450, it remains above the notable MAs with the 200d providing support at 1.0390 and not much by way of resistance on the upside.

No data today.

Author: Rachel Watters
Tel: 1800 30 30 03 / +353 (0)1 790 0000

21 Nov 2022

Morning Comment 21/11/2022

EUR

Significant morning in the story of European inflation with relatively positive news on two fronts. Firstly, we saw German PPI come in at -4.2% MoM albeit still at extremely elevated levels of 34.5% YoY. Secondly, IG Metall, the largest German union, agreed a deal in single state with wage increases of 5.2% and 3.3% in 2023 and 2024 respectively. This deal is seen to be on the modest side and will contain any wage price pressure as it anchors subsequent deals. The currency is however on the back-foot this morning as the recent risk rally loses momentum on negative China Covid news. EUR/USD currently trading down at 1.0250 with next support level within touching distance at 1.0210 and the top of range continuing to be capped by the 200d MA which sits just above 1.04. EUR/GBP remains range bound between 86p and 88p with no idiosyncratic drivers able to push the needle in either direction.  

GBP

Quiet week in terms of domestic data/news coming up for the UK as the market continues to digest last week’s autumn statement where a return to fiscal orthodoxy has calmed things considerably. BOE Members Pill and Ramsden to speak during the week but unlikely to have any outsized effect. Cable trading in line with broader dollar moves and is down c. 1% this morning, down to the bottom of the 1.18 handle where it has found some support.

USD

Sizeable turnaround in dollar sentiment starting on Friday  late in the US session and continue into this morning with gains in the dollar basket of 1%. Concerns surrounding China Covid policy the key driver as we saw cases swell and their first death reported in 6 months.  Next moves could be key for the dollar as to whether we return to dollar dominance or the recent correction has legs. Immediate support of 1.02 in EUR/USD with talk of return parity to come after that. Holiday week in the US with Thanksgiving on Thursday will see thinner liquidity leading to increase volatility.

 

Author: Jake Reihill
Tel: 1800 30 30 03 / +353 (0)1 790 0000

8 Nov 2022

Morning Comment 07.11.2022

EUR

The Euro rallied on Friday following an upside surprise in US employment data and news that China could ease stringent Covid measures, boosting risk sentiment across the board. Broad Dollar weakness saw EUR/USD climb back above 99c following its fall below 0.9750 the day before. EUR/GBP also rose sharply higher, climbing to a three-week high above 0.8784. The rally came despite Eurozone economic data released the same day showing business activity within the bloc contracted in October at its fastest pace since the end of 2020. The data suggests that the Eurozone may be heading for a winter recession, with high inflation and dampening demand hurting business confidence. In data for the week ahead – Retail Sales figures on Friday will come into focus and we also hear from multiple ECB speakers throughout the week, including President Lagarde this morning.

Services PMI @ 9am

GBP

The Pound had a mixed day on Friday following its sharp sell-off after the BoE rate announcement. EUR/GBP rose to a three-week high of 0.8784 but the Pound was able to capitalize on a weaker US Dollar as GBP/USD rose back above 1.13. BoE chief economist Huw Pill on Friday repeated the BoE’s message that rates were likely to go up but not by as much as investors had expected following the recent period of political and market turmoil in Britain. The market is now awaiting a planned fiscal statement on Nov. 17 from Britain’s new finance minister Jeremy Hunt, with indications there will be a squeeze on public spending and potentially higher taxes. In the week ahead – UK GDP and output figures will capture attention following a period of heightened volatility for the Pound.

No data of note today.

USD

We rounded off a very busy week on Friday with the US nonfarm payrolls. The figures showed the US economy added 261,000 jobs in October, beating forecasts of 193,000. Meanwhile, the unemployment rate edged up to 3.7%, versus expectations of 3.6%. The data suggests that the US labour market is still resilient despite the Fed’s tighter policy, which could mean higher rates for longer in the US. The better-than-expected upside in the headline NFP number initially triggered further Dollar strength but that soon unraveled as news out of China suggesting a possible U-turn on their zero-Covid policy. EUR/USD rose back above 98c, while GBP/USD rose above the 1.13 handle. Octobers CPI print due out Thursday will be the data focus in the week ahead. The print should provide more clues about the Fed’s next steps in terms of future hikes.

No data of note today.

Author: Rachel Watters
Tel: 1800 30 30 03 / +353 (0)1 790 0000

4 Nov 2022

Morning Comment 04.11.2022

EUR

The Euro was trading in a broad range yesterday as focus returned to Ukrainian war headlines. Russia continued to target Ukraine’s infrastructure in an attempt to weaken resistance. Drone strikes were carried out on the Zaporizhzia nuclear power plant causing blackouts. However, the Euro’s losses were limited somewhat by Vladimir Putin’s U-turn on the Black Sea grain deal yesterday when the Kremlin decided to restart the export of grain via Ukraine. Russia’s threat to stop exports stoked concerns over higher food prices across the EU. Ukraine is one of the largest grain exporters in Europe, so Putin’s reversal eased concerns and helped underpin the Euro. EUR/GBP rose sharply back above 87p following the Bank of England interest rate decision which saw the Pound sell off but EUR/USD continued its fall following Wednesday’s US Federal Reserve interest rate hike with the pair reaching a 9-day low of 0.9730.

S&P Services PMI @ 9am

GBP

The Bank of England raised interest rates by 75bps yesterday in its biggest hike in 33 years in an attempt to tackle double digit inflation in the UK. The Monetary Policy Committee voted 7-2 in favour of the supersized 75bps hike and was in line with market expectations. The size of the hike mirrored that by the US Federal Reserve yesterday but while Fed Chair Powell warned markets yesterday that they underestimate how much more the US central bank can tighten, the BoE has gone the other way and strongly pushed back against market expectations for the scale of future increases, warning that following that path would induce a two-year recession. GBP/USD fell to a two-week low below 1.12 yesterday, while EUR/GBP rose to a weekly high above 0.8730. Looking ahead, the MPC retained its meeting-by-meeting approach and the next major event for markets will be the Autumn statement in the coming weeks which could inject further volatility into UK markets.

No data of note today.

USD

The US Federal Reserve hiked by another supersized 75bp yesterday in its battle to contain runaway inflation, bringing the target Federal Funds range to 3.75-4.00%. The statement and press conference paved the way for a downshift in the future pace of hiking, but also made it clear that the Fed has a way to go to tighten policy and will likely end up with a higher terminal rate than suggested by the September dot plot. The Dollar initially weakened after the FOMC statement was released as markets interpreted the addition of language pointing to a possible slowdown in the pace of tightening as dovish. However, Fed Chair Powell was able to deliver a hawkish message at the press conference, emphasizing that it was very premature to be thinking about pausing and that they still have a way to go. Powell’s pushback on the pivot markets have been looking for saw the Dollar regain its strength across the board, pushing EUR/USD back below 98c and GBP/USD below 1.1200.

Non-farm Payrolls @ 12:30
Unemployment Rate @ 12:30

Author: Rachel Watters
Tel: 1800 30 30 03 / +353 (0)1 790 0000