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Greenback strengthens following surprise GDP beat

By Alex Edwards

GBP/USD opens slightly lower this morning as the dollar has firmed across the board. It comes after the delayed US GDP print beat expectations yesterday; the economy was seen to have grown at an annualised 2.6%, down from Q3’s 3.4% but better than estimates of around 2.2%. The commerce department estimates that around 0.1% growth was knocked off by the government shutdown, however it’s likely Q1 2019 is where most of the damage will be done.

In Brexit related news, Jacob Rees-Mogg has written an article in the Daily Mail stating that he will accept the backstop in its current form outlined in Theresa Mays withdrawal agreement, if there is a clause that it expires before the next general election, which is scheduled for 2022. Meanwhile, Theresa May is continuing to negotiate in Brussels to get some sort of concession re: the Irish border that will win over Eurosceptics in parliament.

With all this going on cable continues to trade around the 1.3250 handle, buoyed by the chances of a no-deal Brexit having diminished to around a 16% (according to Bloomberg).

The dollar is stronger this morning owing to the GDP beat yesterday. Later on, US Treasury Secretary Steven Mnuchin commented on the state of the economy saying the US economic outlook was very strong. However, he warned there was still some work to do with regards to a trade deal with China.

We also had the monthly Chicago PMI release, which is a monthly health check of the economy in the Chicago area. This posted a very healthy 64.7, up from last month’s 56.7.

Traders now turn their attention to today’s ISM Manufacturing PMI.

There was little European data yesterday. However, a Reuters poll of economists showed that virtually all expect no change in policy from the ECB next week at its monetary policy meeting. They were also evenly split over whether benchmark rates would be raised this year or next. Given the recent slowdown in the Eurozone, a lot expect the bank to re-launch its cheap loans programme (Targeted Long-Term Refinancing Operations) in the next few months.

EUR/USD is at 1.1370 with GBP/EUR at 1.1650, with market participants looking to a series of European PMIs.

AUD/USD is lower this morning despite an uptick in Asian equities and the release of better than expected China Manufacturing PMI. It’s owing to the stronger USD, itself a direct result of the better than expected US GDP.

The Canadian dollar is stronger this morning, buoyed by an improvement in risk appetite and increasing oil prices.

Canadian GDP is due for release today and will be the main focus for USD/CAD traders. Markets are expecting a flat reading of 0.0% m/m.

NZD/USD has traded a very narrow range since falling 50 odd points following the release of stronger than expected US GDP yesterday. Investors will continue to look to US data into the end of the week for direction, but it may well be a quiet finish for the kiwi. It opens in London at .6810.