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Sterling muted as May survives

By Hamish Muress

It would appear that Theresa May has survived the dreaded meeting with the 1922 Committee with reports from inside that the Prime Minister ‘was able to win the room, despite being frank about the difficulties’. The fact that the PM has won over many Tory MPs within the very influential and powerful 1922 Committee is a mini victory for Prime Minister. However, we have long maintained that the pound is trading on details at the moment and with little of these coming from yesterday’s meeting sterling is on the back front.

The other factor causing jitters for sterling though is a possible vote of no confidence within Westminster however given the reprieve from the 1922 Committee this risk has been kicked down the road.

The equity rout continues to continue with the NASDAQ now falling more than 4% whilst the S&P approaches double digit loses with now single trigger being the apparent cause although concerns around rising borrowing costs is a good bet. President Donald Trump continues to criticise his Federal Reserve Chairman appointment Jerome Powell now stating that it may have been a mistake to appoint Powell as Chairman. This is surprising really (or given the fact that it is Donald Trump, not surprising at all) due to the fact that Powell was always seen as the continuation candidate for the Fed and Yellen 2.0.

Tomorrow’s release of third quarter GDP will be the highlight of the week and could be a major talking point as we move into mid-term election season.

It’s back to the drawing board for Italy and the Euro. The Euro saw a small relief rally yesterday as it recovers slightly from its recent losses. The main action today for the Euro will come from the ECB press conference even if this action isn’t great. The ECB is unlikely to change alter its current programme however questions will launched at Draghi about weakening EU growth and Italian debt.

In a week very light of data from Australia the minor news that ratings agency Fitch has maintained Australia’s AAA rating is something to write about. The Aussie is finding it very difficult this week to maintain and build any momentum as it has failed to hold onto the significant ‘big’ figure of 0.71 against the USD on four separate occasions.

Well as expected the Bank of Canada raised its interest rates once again to 1.75% from 1.5% making it a fifth hike in just over a year. There was some questions about whether the BoC could come out more hawkish as well in their statement following the announcement and Governor Poloz did not disappoint. By removing any reference to ‘gradual approach to hikes’ the central bank has signaled it may be willing to hike rates further and quicker than anticipated. This saw big gains for the Canadian dollar with USD/CAD dropping below 1.30.

The New Zealand dollar has managed to hold onto some ground the last few days but the overnight trade balance figures may not help the Kiwi’s chances which missed expectations by around $200m. Moving into the weekend, the Kiwi will be moved by events elsewhere with little on the domestic data front.