Yesterday began with the growth of the single European currency and the decline of the pound. Moreover, the scale of the movements was quite average. Euro's growth was largely due to the fact that the US macroeconomic dynamics in the United States are questionable, despite the statements of Jerome Powell. In turn, the pound was waiting for the meeting of the Board of England, after which it began to decline immediately. After all, there could be no other development of events, since the British regulator literally stated that if Brexit passes without a trade agreement, then the Bank of England will have to reduce the refinancing rate to negative values. But the most interesting thing happened a few hours later, when the pound quickly began to recover its losses, because of Ursula von der Leyen. The head of the European Commission said that she is confident of signing a trade agreement between Brussels and London. And what is happening now, especially with the UK internal market protection Act, is just a temporary embarrassment and misunderstanding. She also confirmed that the next round of negotiations which will start next week as planned, although the situation around the law on the protection of the internal market of the UK is not yet clear. The discussions and approvals are still ongoing and apparently, the second vote on it will be held on the weekend. Nevertheless, the words of Ursula von der Leyen were enough to make investors optimistic about European currencies. Most importantly, they should forget about the Bank of England's statements. Technically, the growth of the pound and euro is largely based on emotions.
Several macroeconomic data were published yesterday, which, in connection with the events described above, were not very interesting. For example, Europe's final data on inflation in Europe, which coincided with the preliminary estimate confirmed the fact that consumer prices fell by 0.2%, which means that deflation started in Europe. However, everyone knew this even earlier. What's more important is how long will it last. This is the reason why there was not much reaction from the market.
Inflation (Europe):
The US statistics turned out to be quite interesting and also much better than forecasts. Theoretically, the dollar should have risen well after that, but unfortunately, the publication of this data coincided with the statements of Ursula von der Leyen.
So, the number of initial applications for unemployment benefits fell from 893 thousand to 860 thousand, which turned out to be slightly worse than the forecast of 830 thousand. However, the number of repeated applications, which is forecasted to rise from 13 385 thousand to 13 500 thousand, suddenly declines. Moreover, the data were revised for the worse - from 13,544,000 to 12,628,000. Such a huge decline in the number of repeated applications compensates for both the smaller decline in the number of initial applications and the revision of previous data. In any case, it is clear that the US labor market continues to recover, which means that the Fed could really consider raising the refinancing rate next year. Therefore, yesterday's weakening of the dollar was caused solely by emotions regarding Brexit.
Repetitive Unemployment Insurance Claims (United States):
The Euro stopped rising at the moment, while on the contrary, the pound has grounds to strengthen. In view of this, the UK retail sales accelerated from 1.4% to 2.8%. This is a clear increase in consumer activity, and in fact it neutralizes the recent impressive decline in inflation. However, the market now lives exclusively with emotions and expectations regarding Brexit.
Retail Sales (UK):
If there is no news today regarding the approval of the provisions of the law on the protection of the UK internal market, the euro will be trading around 1.1850. And given the extreme interest of the UK in signing a trade agreement with the EU, it is obvious that British parliamentarians will try to smooth out the most controversial provisions of the bill as much as possible, which will be perceived as a very positive factor. So if there is news coming from London, it will be positive and help strengthen European currencies. In this case, it may rise to the level of 1.1900.
The scenarios are exactly the same for the pound, but the scale of growth will be somewhat more important for this currency. Thus, it is possible that the pound will rise to the level of 1.3075 by the end of the trading week. But if there is no news, then it will remain around 1.3000.