GBP

Sterling edged up to a seven month high against the dollar on Tuesday, cementing recent gains as traders shrugged off weak economic growth data and kept an eye on the final days of campaigning before Britain’s general election.

Investors have ramped up their bets in recent days that the governing Conservative Party would win a majority in the election on Thursday, although political pundits are far more cautious.

Sterling held most of those gains even though data showed Britain’s economy grew at its slowest annual pace in nearly seven years in October, just 0.7%.

Industrial output fell by 0.7% in the three months to October and the services sector grew by 0.2%, its weakest increase since June, the data showed.

USD

The dollar slipped as continued uncertainty about the outlook for US-China trade talks kept large moves in the FX market in check.

Currency market moves on Tuesday were fairly muted as investors awaited developments from central bank meetings in the United States and Europe and as a 15th December deadline for the next wave of U.S. tariffs on Chinese goods fed caution in global markets.

Investors are almost certain the Federal Reserve will leave rates unchanged when its two-day meeting ends on Wednesday, while the European Central Bank is likewise expected to keep interest rates steady on Thursday.

EUR

Euro gained on Tuesday after a better-than-expected German economic sentiment survey boosted the common currency.

The euro was higher after the ZEW research institute’s monthly index on economic morale among German investors showed the mood improved far more than forecast in December, with an unexpected rise in October exports boosting hopes for an upturn in Europe’s biggest economy.

Key Announcements

13.30 – USD: CPI MoM; Forecast at 0.2% against previous of 0.4%.
13.30 – USD: Core CPI MoM; Forecast same as previous at 0.2%.
19.00 – USD: FOMC Economic Projections.
19.00 – USD: Federal Funds Rate; Forecast to stay the same at 1.75%.
19.30 – USD: FOMC Press Conference.

GBP

The pound remained strong on Monday, buoyed by opinion polls that point to the Conservative Party winning Britain’s general election on Thursday. The currency surrendered some gains when a later poll showed their lead over the Labour party narrowing. Expectations that the Conservatives will secure an outright majority at next weeks election has boosted the pound in recent days, as investors believe a Conservative majority will help end months of Brexit uncertainty.

Sterling hit a seven-month high against the dollar and a 2 ½ year peak versus the euro after Boris Johnson’s Conservatives extended their lead over the Labour Party. However, a later poll showed their lead declining to six percentage points which put some pressure on sterling.

Key Announcements

None.

Last Week
GBP

• Strong Conservatives majority.
• Labour Party lost further ground.

EUR

• Christine Lagarde outlined ECB vision.
• ECB resolute in restoring price stability.

USD

• China trade talks weigh on dollar.
• Trade deal may happen after 2020 election.
• 15% tariff on $156 billion Chinese products.
• Nonfarm payrolls increased by 266,000.

Week Ahead
GBP

• Parliamentary election.

EUR

• German ZEW Survey.
• German Harmonized Index of Consumer Prices.
• ECB Interest Rate Decision.
• Deposit Rate Decision.
• ECB Monetary Policy & Press conference.

USD

• Consumer Price Index (MoM).
• Consumer Price Index (YoY).
• Fed Interest Rate Decision.
• Fed Policy Statement & FOMC Press Conference.
• Retail Sales.

GBP

Last week, the pound have its biggest weekly rise in over 2 months, despite consolidating on Friday. This was fuelled by expectations that the Conservative Party will win this week’s election with a strong majority, giving way to a more certain outcome on Brexit. This is seen as a pound positive because a decisive result and subsequent passing of a Brexit withdrawal deal would boost the economy as it can start to look past Brexit.

USD

The dollar experienced a strong end to the week as data showed that the US economy created far more jobs than expected in November, reinforcing the Federal Reserve’s stance of keeping interest rates on hold. The data showed that nonfarm payrolls had increased by 266,000 jobs last months, beating expectations of 180,000.

Friday’s strong nonfarm payrolls number provided some respite for the dollar after soft data and pessimism from Chinese trade talks had kept pressure on the currency.

Key Announcements

None.

GBP

Sterling moved higher on Thursday as odds of a Conservative majority at next week's election rose above 70% for the first time.

As a result of the news, the GBP-EUR rate rallied to multi year highs to 1.1860 and the GBP-USD rose to multi month highs to 1.3159.

This appreciation in sterling represents an improvement of 10% against the EUR since August, and 7 against the USD since October. Analysts have commented that along with favourable polling for the Conservatives, sterling has been aided by a breach of key technical levels at 1.30 against the USD and 0.85 on the EUR-GBP.

The Conservatives were given a further boost during Thursday’s session as Annunziata Rees-Mogg, Lance Forman and Lucy Harris announced that they would resign from the Brexit Party in a bid to help PM Johnson get his Brexit deal over the line.

The next polling results are scheduled to be released over the weekend. If the polls show Labour as having closed the gap, it’s likely we could see a correction in sterling on Monday.

EUR

EUR gained against the USD on Thursday and moved above 1.11 despite mixed data releases. GDP figures came in line with expectations, although retail sales fell below expectations of -0.3% to -0.6%.

Key Announcements

USD - 13:30: Non-Farm Payrolls (NOV) Expected: 180k Previous 128K.
USD - 13:30: Average Hourly Earnings (YoY) (Nov) expected: 3% Previous: 3%.
USD - 15:00: Michigan Consumer Sentiment Index (Dec) Expected: 96.5 Previous: 96.8.