Currency Report 17/Dec - GBP still truggling, possible relief Wednesday & Thursday
 

UK News & Data releases

UK CPI could see some interest today. Inflation fell back to 2.2% in October from 2.7% in September. Inflation is expected to remain unchanged in November and will likely see a muted market reaction. We expect GBP/USD to remain range bound today, ahead of key releases tomorrow, with UK labour market statistics, MPC minutes, and the much awaited December FOMC meeting. We think the $1.6260 remains good support, with the 1.6420 level to provide good resistance.

USA News & Data releases

US data was mixed yesterday with Manufacturing data coming in weaker than expected, however Industrial Production surprised on the upside. US CPI out this afternoon may attract some interest given the Fed's concerns about low inflation. It is expected to show core inflation has somewhat stabilised.

Recent market surveys suggest a 33% probability of December 'tapering' is priced in now. Reports suggest the Senate will vote on the budget deal today, should this go through, this would support the recent rise in market expectations of early 'tapering'. We expect the USD to remain supported ahead of tomorrow's key event.

Euro zone news & data releases

The Euro to US Dollar exchange rate edged higher yesterday broadly in line with most forecasters. German ZEW survey may attract some market interest this morning. Yesterday's stronger than expected German manufacturing PMI suggests slight upside risks to today's numbers. Eurozone November CPI is unlikely to be revised today, and will therefore unlikely trigger much market reaction.

Most think EUR/USD remains biased to the upside and still see potential for a test of the year high of 1.3832. However, this may be difficult to achieve ahead of the FOMC meeting.

Scandinavian news and data releases

The Riksbank meeting will be a key focus this morning. We see risks of a 25bp rate cut due to the weakness in inflation, subdued Q3 growth and unemployment remaining at elevated levels. Headline inflation fell into deflationary territory in October and failed to significantly pick up in November.

The current repo path does suggest the probability of a near-term rate cut. Market consensus expectations are for a rate cut today, with only 30% of forecasters expecting no change. Even if the Bank does not cut today, we would expect, at a minimum, a downward revision to the current rate path. The Riksbank are currently projecting 125bps of rate hikes by end-2015, with the first hike in Q1 2015 compared to Norges bank of only 30bps of hikes by end 2015.

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