Brexit and Economic Data Bring the GBP in Focus

Earlier in the Day:

The Asian session saw investor sentiment wane in response to the negative news on U.S tax reforms, with a slide in the Dollar seeing the Yen pull hit low ¥113 levels on Thursday, dragging the Nikkei deeper into the red this morning. The Dow’s slide on Thursday weighed on risk sentiment and with valuations at current levels, investors are particularly quick to take flight to safety.

At the time of writing, the Yen was up 0.09% at ¥113.37.

It wasn’t all doom and gloom in the equity markets however, with the Hang Seng and the CSI300 making further gains, with Trump’s positive comments on the Chinese Premier and trade likely to have been a boost.

While the markets were jostling for position following the news from the U.S, there was some economic data to factor into the session.

The Kiwi Dollar took another hit, with October electronic card retail sales falling short of expectations this morning. Following a sluggish 0.1% rise in September, sales increased by just 0.3% in October. The RBNZ may have brought forward their projections for the next rate hike, but there are plenty of concerns over the economy and that’s before considering what lies ahead with the new coalition government. At the time of writing, the Kiwi was down 0.09% at $0.6942, with U.S Dollar weakness being the saving grace for the Kiwi bulls.

Things were not much better for the Aussie Dollar, with the RBA’s quarterly monetary policy statement weighing on the Aussie this morning. The RBA revised down its economic growth projections, with growth for next year revised from 3.75% to 3.25% and from 3.5% to 3.25% for 2019. Growth for this year was forecasted to hit 2.5%.

With the RBA also suggesting that inflation will unlikely rise above the Bank’s 2% target until the end of next year, a shift in policy is certainly off the table for now. The softer inflation expectations come after the Australian Bureau of Statistics updated its calculation method. The ABS stated that consumer price growth was being overestimated. As a result of the revisions, the RBA has said that 3rd quarter inflation was likely to be 1.5% rather than the previously calculated 1.8%.

Wage growth and inflation continue to be the drag, with high levels of household debt pegging back consumer spending.

The Aussie Dollar slipped from $0.7683 to $0.76775 upon release of the statement, before moving back into positive territory at the time of writing.

The Day Ahead:

It’s a relatively quiet day for the EUR, with key stats out of the Eurozone limited to France’s nonfarm payroll figures for the 3rd quarter. Forecasts are for a payrolls to rise by 0.3%, shy of the 2nd quarter’s 0.4%. Barring a material deviation, the EUR’s unlikely to be particularly moved by the numbers following the ECB’s upbeat assessment of the Eurozone economy on Thursday.

At the time of writing, the EUR was up 0.03% at $1.1646, steering clear of $1.15 levels for now.

For the Pound it’s a big day. Key stats scheduled for release this morning include September’s industrial and manufacturing production figures along with September’s trade data. The UK’s trade deficit has widened of late, despite the softness in the Pound, so the markets will be looking for the deficit to narrow and for manufacturing production to see continued growth.

The UK’s monthly NIESR GDP estimate is also scheduled for release this afternoon, which could soften any negative sentiment from Brexit should the numbers impress.

Any positive numbers will provide some support for the Pound, though direction will likely remain hinged on Brexit news and how the British PM navigates through the current crisis within the Tory party. Theresa May has set the exact time and date that Britain will leave the EU and its 11pm GMT, 29 March 2019. Brexit negotiations are set to resume, but there remains plenty of opposition to Britain’s departure and that’s going to increase the uncertainty of whether politicians can find common ground to get the best Brexit deal for Britain.

At the time of writing, the Pound was up 0.06% at $1.3153, with direction through the day dependent upon the data and news from the Brexit negotiating table.

Across the Pond, stats out of the U.S. are limited to November’s prelim Michigan Consumer Expectation and Sentiment figures. While the data will have an influence, key focus will remain on the tax reform bill, with the markets having gone into a panic on Thursday over the possibility of the bill not being passed until 2019. The fact that the House Ways and Means Committee have approved the tax bill brings it a step closer to fruition, with a possible vote next week being the next major event for the Dollar.

The issue remains disagreement between the House and the Senate and even if next week’s vote pushes the bill to the house, it certainly doesn’t mean that it’s going to be a done deal in spite of both the house and the senate being in the hands of the Republicans.

At the time of writing, the Dollar Spot Index was up 0.08% at 94.519. The upside comes as market tension over a possible delay in tax reforms eased ahead of the European session.