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Brexit and the FED Put the GBP and Dollar in Focus

Bob Mason
The FED’s «patience» has supported the markets this year. But yesterday the same mood led the retreat of stocks and raised the dollar, as the markets were set for further softening of the rhetoric.

Earlier in the Day:

Economic data released through the Asian session this morning was limited to 4th quarter current account figures out of New Zealand.

Outside of the numbers, the BoJ released its monetary policy meeting minutes from February.

For the Kiwi Dollar,

The 4th quarter current account deficit narrowed from NZ$6.15bn to NZ$3.26bn, quarter-on-quarter. Forecasts were for a narrowing to an NZ$3.56bn deficit. Year-on-year, the deficit widened from NZ$10.54bn to NZ$10.97bn, according to figures released by NZ Stats.

The Kiwi Dollar moved from $0.68519 to $0.6807 upon release of the figures. At the time of writing, the Kiwi Dollar stood at $0.6832, down by 0.34% for the session.

For the Japanese Yen,

The January BoJ policy meeting minutes had a relatively muted impact on the Japanese Yen, with the markets having responded to last week’s policy decision.

The Japanese Yen moved from ¥111.405 to ¥111.494 upon release of the minutes. At the time of writing, the Japanese Yen down up 0.19% to ¥111.22 against the Dollar, which was on the move early on.

Elsewhere,

At the time of writing, the Aussie Dollar stood at $0.7076, down by 0.17% for the session. Risk-off sentiment through the Asian session weighed on the Aussie Dollar and Kiwi Dollar. The Asian equity majors delivered mixed results through the session. While the Nikkei found support off the back of a weaker Yen, the rest were in the red, led by the CSI300, which was down by 0.63%.

Uncertainty over progress on the U.S – China trade talks weighed on sentiment in the session. The uncertainty comes amidst mixed reports on where things stand.

The Day Ahead:

For the EUR

Economic data is limited to February wholesale inflation figures that are due out of Germany later this morning. With the markets considering progress on the U.S – China trade talks and this evening’s FOMC policy decision, the numbers are unlikely to have a material influence on the EUR.

We can expect Brexit chatter and updates from Beijing and Washington to influence risk appetite and the EUR through the day. Dollar weakness could prevail, however, should the FED deliver a particularly cautious tone.

At the time of writing, the EUR was down 0.04% at $1.1348.

For the Pound

February inflation figures are due out of the UK ahead of March’s CBI Industrial Trend Order figures. The inflation figures will likely be the key driver on the day. While forecasts are skewed in favor of the Pound, we would expect any upside in the Pound to be short-lived. Focus remains on Brexit. Theresa May is due to request an extension to Brexit at the EU Summit tomorrow.

Considering the risk of an EU member state voting against such an extension, the Pound is relatively stable. It could all change as the day progresses, however.

At the time of writing, the Pound was down by 0.09% to $1.3256.

Across the Pond

There are no material stats due out of the U.S today. The lack of data leaves the markets to focus purely on today’s FED policy decision.

While the FED is expected to leave rates unchanged, the big question is on how FOMC members project the economic outlook and rate path for this year and next.

Economic data out of the U.S has leaned towards the negative, but not dire enough for the FED to raise the alarm. More than a single rate hike for the year and expect a bounce in the Dollar. One other area of interest will be the FED’s plans, vis-à-vis the balance sheet.

At the time of writing, the Dollar Spot Index was up by 0.07% to 96.449.

For the Loonie

Yet another quiet day leaves the Loonie in the hands of the FED and market risk sentiment through the day.

Following a dovish Bank of Canada at the start of the month, there’s been very little data to suggest a near-term shift in outlook. This should pin the Loonie back near-term.

The Loonie was down 0.11% at C$1.3334, against the U.S Dollar, at the time of writing.

This article was originally posted on FX Empire

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