|Day's Range||97.35 - 97.40|
|52 Week Range||96.33 - 98.67|
Following Theresa May’s decision to delay the parliamentary vote scheduled for later today, Brexit and U.S – China trade chatter will be in focus.
A shift in sentiment towards FED monetary policy and trade war jitters pin back the Greenback as the markets prepare for the next Brexit saga.
According to the WSJ, members of the U.S. Federal Reserve are reportedly debating whether to signal a “wait-and-see” approach after a probable hike to the central bank’s benchmark rate at its December meeting.
U.S. equity markets settled lower on Thursday, but well off their lows after news hit the market that the U.S. Federal Reserve could tighten monetary policy at a slower pace than previously expected.
The weaker than expected jobs data as represented by the Challenger Job Cuts report and the Weekly Unemployment Claims report, suggests a loss of momentum in the labor market. This places greater importance on Friday’s U.S. Non-Farm Payrolls report.
However, since early October investors buying government debt saw the direction of inflation differently. If you recall, inflation and economic expectations dictate the movement of long-term rates. Investors do this by estimating how much they should be compensated beyond inflation for holding government debt over several years.
It’s a choppy start to the day and unlikely to get better, with a heavy set of stats out of the U.S, Brexit and Trade Chatter to drive the majors.
With the U.S markets closed focus shifts back to the Pound, which is under intense pressure as British PM struggles in the Commons.
Short-term yields have been firming at a faster pace than longer-term yields throughout the year. They have been impacted the most by changes in Fed policy, which has been driven by Fed Chair Jerome Policy and his Federal Open Market Committee policymakers. The FOMC has increased rates three times in 2018 and stands ready to increase rates again for a fourth time in just a matter of weeks.
Last week, Powell highlighted the growth of volatility in the global financial markets, the fading effect of tax reform, as well as the decline in demand outside the United States. All these factors, as noted by the head of the Fed, may interrupt rising rates by the middle of next year.
The combination of the tame inflation report, comments from Fed Chair Powell on cooling global demand and the dovish comments from Fed Vice Chair Clarida stating the Fed is getting closer to neutral, are all signs the Fed may slow its pace of rate hikes and this should be bearish for the U.S. Dollar.
Although German bond yields initially rose on Friday on the back of some of Draghi’s comments, the Euro retreated from its highs with traders perhaps rattled a little by the uncertainty over the timing of the first rate hike and the possibility of a change in guidance.
With economic data on the lighter side, we can expect geo-politics to continue to take center stage, the Pound in desperate need of good news.
Powell started his speech in Dallas by expressing confidence in U.S. economic strength, while saying markets will have to get used to the idea that the central bank could raise rates at any time starting in 2019.
Speaking ahead of remarks of Randal Quarles, the Federal Reserve’s vice chair of oversight for the banking industry, Waters said efforts to loosen the reins on Wall Street financial institutions won’t be tolerated should she be committee chair, as expected.
While inflation figures out of the UK and U.S and 3rd quarter GDP numbers out of Germany will be in Focus, it could all come down to Brexit and Italy.
The demand for the dollar as a protective asset has increased again, which further weighted the stocks. Focus shifts to Italy and the European Commission around the budget deficit.
Economic data is likely to have a relatively muted impact on the majors through the day, with heightened geo-political risk to drive the EUR and the GBP.
Brexit and Italy will be in focus through the day, the EU Commission the common denominator, placing GBP and the EUR in the spotlight.
The Dollar/Yen rose last week as buyers returned to the stock market, dampening the attraction of the Japanese Yen as a safe-haven asset. The Australian Dollar rose steadily all week, seemingly unaffected by the outcome of the U.S. elections and another hawkish statement from the Fed. The New Zealand Dollar rose last week, supported by solid employment data and a surprise tweak to the Reserve Bank of New Zealand’s monetary policy statement.
The growth wave of the dollar on Thursday supported the Fed. Keeping the policy unchanged, the U.S. Central Bank called the economy “strong” and highlighted the need to maintain its course to gradual rates hiking.
Ahead of the new week, buyers are likely to continue to support the dollar for two reasons: the Fed is still hiking rates and trade tensions are still making the greenback an attractive safe haven asset.
After a strong rally at mid-week, following the mid-term elections that resulted in a split Congress, the markets sputtered into Friday’s close. The catalysts behind the selling pressure were weaker crude oil, disappointing data out of China and a hawkish U.S. Federal Reserve.
According to the Labor Department, the producer price index which measures price increases before they reach the consumer, jumped 0.6 percent in October after posting a smaller 0.2 percent rise in September. The increase exceeded the 0.2 percent forecast.
The RBA’s Statement of Monetary Policy did the Aussie Dollar no favors early on, with focus now on stats out of the UK and Brexit chatter.