Morning Report – Thursday 17th December

Jon Robson, Head of Trading

“The dollar was under significant pressure at the beginning of December and although it was given a small reprieve – most likely due to end of year profit taking – the sell off has continued and new trading ranges are being established as we move into 2021.”

Main Headlines

The Federal Reserve kept its Bank rate unchanged in the FOMC meeting yesterday, but will keep up the pace of their asset purchase programme ($120 billion a month) until there are signs of substantial progress in the recovery. The language used confirms the Fed’s stance of ultra-loose monetary policy until at least 2023.

Boris Johnson is drawing up plans to recall MPs over the Christmas break for an emergency meeting next week. Brexit talks are going well, and were given a boost yesterday when Ursula Von der Leyen said that “there is a path to an agreement now”, although there is still work to be done.

GBP

The pound is higher against both the euro and dollar this morning and is trading at two-and-a-half year highs. Brexit negotiations look to be entering the final phase with the ‘Level Playing Field’ issue being the most difficult. The Prime Ministers push for the House of Commons to sit next week is good sign for the prospect of a deal. The Bank of England is set to keep the policy rate and asset purchases unchanged until the UK fully recovers from the pandemic in its policy decision this afternoon.

EUR

The euro is higher against the dollar in early morning trading today. European authorities are looking to follow in the footsteps of the UK and US and give emergency approval to the Pfizer/BioNTech vaccine, as Coronavirus cases continue to rise in the continent. Authorities are hoping for a pre-Christmas rollout, but this may be too much to ask.

USD

The dollar is lower against a set of major currencies, including the Japanese Yen this morning. The final details of the $900 billion US fiscal stimulus package are being agreed and should hopefully be ready for approval by the end of the week. The prospect of new stimulus combined with no changes to monetary policy pushed the dollar down to its lowest level since 2018, and there is scope for the broad based dollar weakness to continue.

Markets

Global equities increase again as the US fiscal stimulus saga looks set to be nearing an end, and investors were buoyed by Fed Chair Jerome Powell’s improved outlook for the economy. Bond prices are mostly unchanged, while both Oil and gold increased.

Main Economic Data/Central Banks/Government (All times GMT)

7:00 a.m.: EU Nov. New Car Registrations
7:45 a.m.: France Dec. Manufacturing Confidence
8:30 a.m.: Switzerland Rate Decision
9:00 a.m.: Norway Rate Decision
10:00 a.m.: Euro-Area Nov. CPI
12:00 p.m.: BOE Rate Decision
1:30 p.m.: Czech Rate Decision
1:30 p.m.: U.S. Initial Jobless Claims
4:00 p.m.: ECB’s Schnabel speaks
5:30 p.m.: ECB’s Guindos speaks