US equity markets were mixed yesterday whilst European equity indices predominantly fell. USD weakened across the board partly fueled by the recent aggressive US trade stance and comments by Treasury Secretary Mnuchin suggesting that a weaker dollar is not a concern.
GBP and BRL were the top performers in the FX space and crude oil rallied to the highest level since early 2015 as inventory drawdowns in the US continued.
UK labour market data surprised to the upside yesterday as the job market grew by 102k in November further building on the recent positive GBP sentiment. However, nominal wage growth remained unchanged despite an uptick in core earnings.
The pace of the move higher in GBPUSD yesterday and overnight has caught many by surprise but focus today is likely to fall on EURGBP given the ECB meeting and the fact that EURGBP is hovering just above the 6-month low around 0.8690.
GBPUSD short-term support comes in at 1.4170 whilst resistance is found at the overnight high of 1.4328. In EURGBP, support comes in at 0.8690 with resistance at 0.8740.
BRL and Brazilian assets outperformed yesterday after a court upheld former President Lula’s corruption conviction which will make it harder for him to run for president this year.
Today’s focus lies on the ECB’s meeting and market participants will be looking for hints of upcoming forward guidance changes.
Barclays Research expects Draghi to keep policy unchanged today. Any changes to forward guidance are not expected until April with interest rate hikes to start in December.