Miserable Monday for the Euro

GBP

The pound started the week on the front foot making good gains against the euro and is now back up near its highest levels of the year. Unusually it shrugged off the potentially negative news that, in Lord David Frost’s view, that the recent EU proposals ‘don’t go far enough’.

Traders also ignored Monetary Policy Committee member Silvana Tenreyro’s assertation that she needed more time to assess the economic revival before advocating a rate hike. Her views contrast those of the Bank of England’s Governor and its chief Economist, who both seem to have their sights on an interest rise next week

EUR

Overnight, the euro has continued its slide against both the dollar and sterling and with no fresh data on the agenda today, it remains at the mercy of its peers. Yesterday Germany’s Ifo index of business sentiment added to the euro’s woes when it was reported to have dropped for the fourth month in a row. Economists are now concerned that the economy is stagnating in the fourth quarter, increasing general worries over the Eurozone’s recovery.

These fears will serve to feed the doves in the European Central Bank and leave them with a strengthened hand during their monthly meeting on Thursday. As we said last week, the euro will find it hard to rally with the ECB in the hands of the doves whilst the central banks of the US and the UK look set to tighten.

USD

The dollar reawakened yesterday and rose from its lowest levels for a month. Ahead of a busy end to the week, which includes the release of US Gross Domestic Product and updated inflation data, traders are starting to cover their short dollar positions and book their profits. Today, September’s housing data is released, but possibly more noteworthy will be the level of Consumer Confidence reported this afternoon.

If confidence is reported as dropping, a scintilla of doubt may start to enter the markets about the Federal Reserve’s willingness to tighten, which would encourage dollar sellers to reappear.