December 27, 2023

“The Euro climbed against major currencies this morning, reaching a four-month high in its fourth straight session of gains against the dollar. The rise reflects optimism over an expanding Europe-US policy gap and a potential Federal Reserve rate cut. Key US economic reports today include Weekly MBA Mortgage Applications and the Richmond Fed Manufacturing Index.”

Sam Cornford, Partner – Head of Trading

Main Headlines

Republican presidential contender Donald Trump shared a poll on Truth Social yesterday, indicating that “revenge” is the predominant term linked with his possible second term. This post followed an earlier one on Christmas Day, where the former president told his political rivals to “rot in hell.” The act of reposting the poll, showcasing “revenge” in bright red capital letters at the heart of a word cloud, underscores his commitment to a “retribution” agenda as the US heads towards an election year. The survey, highlighting the mood among voters, was conducted by the UK-based polling agency J.L. Partners.

According to recent long-term projections, the UK is expected to be Europe’s top-performing major economy over the next 15 years, closing in on Germany’s economic performance and further outpacing France. The Centre for Economics and Business Research has forecasted that the UK’s GDP growth will stabilise at between 1.6% and 1.8% up to 2038, enabling it to maintain its status as the world’s sixth-largest economy. The forecasts published yesterday indicate that the UK will emerge from a prolonged economic slump, marked by Brexit and a series of shocks including the pandemic and escalating inflation.

GBP

Sterling is weaker than most major currencies in the early morning trade. UK shares opened higher this morning, buoyed by gains in mining companies, as investors embraced year-end optimism fuelled by anticipations that major central banks might start reducing interest rates in the forthcoming year. In other developments, Goldman Sachs has revised its outlook, predicting that the Pound will appreciate against the US Dollar by the end of 2024. Conversely, analysts at HSBC anticipate that the GBP/USD exchange rate will decline by the third quarter of 2024.

EUR

Euro is well bid against most major currencies overnight. The European Union is devising a contingency strategy, valued at up to €20 billion ($32.3 billion), to support Ukraine. This plan employs a debt framework designed to circumvent the concerns raised by Hungary’s Viktor Orban regarding the financing of the conflict-affected nation. Authorities engaged in the discussions have indicated that one approach, financed through debt, is emerging as the most feasible method to offer support if Mr. Orban maintains his veto at the scheduled summit on February 1.

USD

The Dollar is stronger against Sterling and weaker against Euro this morning. This morning, the dollar continued to face pressure, and the euro was near a four-month high, driven by market expectations that the Federal Reserve might soon lower interest rates. However, limited movements were observed due to thin year-end trading flows. The dollar index, which compares the US currency against six major counterparts, was nearing its five-month low. The index is headed towards a 1.9% decrease in 2023, following two consecutive years of significant increases, which is attributed to the initial expectations and subsequent actual rate hikes by the Federal Reserve to combat inflation.

Markets

European markets opened higher this morning, starting the last trading week of 2023 on a positive note, while major global indexes remained close to record high levels. The pan-European Stoxx 600 index rose by 0.4% in early trading following a tentative start. Leading the gains, oil and gas stocks increased by 1%, with most sectors and major exchanges moving into positive territory. In the United States, the S&P 500 is pursuing an all-time high following another successful day on Wall Street yesterday. US stock futures remained mostly unchanged in early premarket trading this morning.

Main Economic Data/Central Banks/Government (All Times CET)

10:00 a.m.: Switzerland Dec. UBS Survey Expectations
10:00 a.m.: Austria Dec. Unicredit Bank Austria Manufacturing PMI
12:00 p.m.: Israel Industrial Production
4:00 p.m.: US Dec. Richmond Fed Manufacturing Index
5:00 p.m.: Russia Nov. Industrial Production, Unemployment, Weekly CPI

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