The BoE and FED Talk to Drive the GBP and USD

Earlier in the Day:

There was plenty of stats released this morning, with the RBNZ interest rate decision and release of its monetary policy and rate statement, together with Australia’s quarterly business confidence figures, current account figures out of Japan and China’s January trade data for the markets to consider early on in the Asian session.

While expectations were for the RBNZ to hold rates unchanged at 1.75% this month, focus was on whether there would be any shift in policy following softer 4th quarter inflation figures.

Following the soft 4th quarter numbers, the RBNZ revised down its inflation projection for this year, from 2.1% to 1.8%, with the Bank not expecting inflation to move to 2% until the 3rd quarter of 2020, with the 2019 inflation rate revised down from 2% to 1.8%.

With the RBNZ retaining the language “Monetary policy will remain accommodative for considerable period,” there’s unlikely to be a move this year and not until the middle of next.

While the RBNZ was a somewhat more upbeat, with GDP projections being upwardly revised, the Kiwi Dollar fell from $0.72575 to $0.72176 upon release of the statements, weighed by the downward revision to inflation projections.

Out of Australia, the NAB Quarterly Business Confidence Index for the 4th quarter came in weaker than the 3rd, falling from 8 points to 6 points, with the gap between business confidence and business conditions widening in the quarter. While the numbers were softer, expectations of improving forward orders and employment in the next 3-months and 12-months were positive takeaways, with business CAPEX plans for the next year also rising.

The survey also noted that the most influential issue affecting business confidence was wage costs, which suggests that some sectors are experiencing shortages in skilled labour.

The Aussie Dollar moved from 0.78200 to $0.78196 upon release of the report, with the uptick in last week’s December monthly report softening the blow.

For the Yen, there was little response to the release of Japan’s current account figures for December. While the account surplus narrowed from ¥1.347tn to ¥0.797tn in December, 2017’s current account surplus of ¥21.8tn was the largest since before the global financial crisis, supported by strong earnings from foreign investments and favourable trade terms.

China’s trade data surplus narrowed from US$54.69bn to US$20.34bn in January, off the back of a 36.9% surge in imports, driven largely by rising commodity prices. Exports rose by 11.1%. In spite of imports and exports coming in well ahead of forecasts, concerns linger over the impact of any trade tariffs on goods from China, with China’s property market questioning prospective demand for raw materials in the months ahead.

At the time of writing, the Yen was down 0.18% to ¥109.53 against the Dollar, while the Kiwi Dollar was down 0.61% to $0.71946, with the Aussie Dollar down 0.14% to $0.7812.

In the equity markets, it was a mixed bag, with the Nikkei and ASX200 in positive territory at the time of writing, while the Hang Seng and CSI300 stood in the red, with China’s January trade figures providing little support.

The Day Ahead:

Economic data out of the Eurozone this morning is limited to Germany’s December trade figures, which is forecasted to be EUR negative, with Germany’s trade surplus forecasted to narrow from €22.3bn to €20.4bn at the end of the year.

Focus will likely be on the 2017 numbers however, that are likely to be EUR positive, with Germany’s trade surplus having stood at €18.4bn in December of 2016.

Following the upbeat assessment of the EU economy, the ECB will be releasing its economic bulletin this morning, which will likely paint a rosy picture of the Eurozone economy, with any upward revisions to growth and, more importantly, inflation forecasts a positive for the EUR.

At the time of writing, the EUR was down 0.02% to $1.2262, with today’s stats and FOMC member commentary the key drivers.

For the Pound, it’s a big day with the BoE’s February monetary policy decision and release of its inflation report the key area of focus this afternoon, with no material stats scheduled for release following the house price figures released in the early hours.

Expectations are for the BoE to take a more hawkish stance on policy, in a bid to curb inflationary pressures, with BoE Governor Carney’s last commentary being upbeat and 4th quarter GDP numbers having come in better than had been forecasted.

Uncertainty over Brexit remains a challenge for the BoE however, which may temper any talk of a near-term rate hike.

At the time of writing, the Pound was up 0.02% to $1.3879, with Pound also susceptible to any negative Brexit chatter.

Across the Pond, economic data is limited to the weekly initial jobless claims numbers this afternoon. While the numbers are unlikely to have a material bearing, FOMC member commentary will be monitored closely, with members Kaplan, Harker and Kashkari scheduled to speak through the day.

Hawkish commentary this afternoon would certainly be Dollar positive, with any hawkish comments on monetary policy by Kashkari likely to have the greatest impact.

At the time of writing the Dollar Spot Index was up 0.13% to 90.369, with direction through the day in the hands of the FED.