09/11/2018 - Hawkish Fed Signals December Hike

USD

The Dollar extended its recovery following a sigh of relief across markets after the U.S. midterm election results.

Investors quickly turned their attention towards the Federal Reserve's policy meeting. The Fed kept interest rates unchanged, but set the stage for a rate hike in December. A hawkish Fed pointed to a robust U.S. economy, rising inflation and solid jobs growth as reason enough to stick its monetary stance, as markets are now pricing in a hike at the next meeting.

GBP

The Pound rose for fourth consecutive day on Thursday as investors seem optimistic that a Brexit deal is on the horizon. It has benefited from signs that the UK will be able to finish a deal, despite reports that a cabinet meeting to deal with the negotiating position has been delayed until next week.

Sterling has risen three percent versus the dollar even though there are unresolved differences with the Irish border. It is unclear if a deal will be finalized in time to hold an emergency summit of EU leaders in November to sign off on the final deal.

If the cabinet agrees to Prime Minister Theresa May’s deal then an EU summit can be held before the end of the month. A backstop has been seen as necessary to ensure there will never be a return to a hard border in Ireland if the UK and EU are unable to secure a long-term free trade deal after the transition period ends in 2020.

EUR

The Euro fell on Thursday after the European Commission cut its forecasts for Italian growth, adding to investor concerns about the euro-zone's third-largest member's debts and economic outlook.

Italy hit back at the European commission’s latest criticism of its budget accusing it of being ‘outdated’ analysis. The European commission are not keen on Italy’s plan for an expansionary budget which could widen Italy’s budget deficit. Italy are standing firm and refuse to amend their budget targets despite increased pressure from the EU.

Italy says it’s needed to support an economy that’s underperformed for years, but the EU and investors are worried about what it will do to the country’s mountain of debt. Giovanni Tria reiterated that the government is committed to maintaining its “maximum deficit” target at 2.4 percent of economic output. The commission has rejected that as being too expansive, while predicting the actual 2019 gap will be even wider at 2.9 percent, close to the EU’s 3 percent limit. Tria met with euro-area counterparts this week and said he wants a dialogue with the commission, which has set a November 13th deadline for a re-submission of the budget.

Key Announcements

09:30 - GBP: GDP Figure (QoQ) (Q3); Expected to rise to 0.6% from 0.4%
09:30 - GBP: GDP Figure (YoY) (Q3); Expected to rise to 1.5% from 1.2%
09:30 - GBP: GDP Figure (MoM) (Sept); Expected to rise to 0.1% from 0%