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Gains on the election trail and an unexpected RBNZ release

GBP - British Pound

We shall start today's wrap away from Brexit and politics for a change and focus on the fundamental data from the UK. Yesterday's docket highlighted the current state of affairs in the UK’s employment sector and it wasn’t great reading. Although the unemployment rate fell from 3.9% to 3.8% in September this reflected a decline in the number of economically active individuals, given a sharp monthly drop in the employment figure. Investors were also deterred by an unexpected dip in average weekly earnings, with weaker wage growth likely to limit economic activity as consumer spending falls. Firms costs are on the rise so the margins for them to raise pay is being chipped away, this could result in future wage growth numbers dwindling. This further supports the BOE’s dovish stance and keeps a loosening monetary policy still on the cards therefore, the employment sector will be of slight concern and possibly drag on the pound.

On to politics now and a recent YouGov poll cemented the view that the conservatives' lead has widened. Boris Johnson's Conservative Party has a 14-point lead over the opposition Labour Party so now stands at 42% against Corbyn’s 28%.

The Pound could come under further selling pressure today when we see the CPI release at 9.30am. With forecasts pointing towards the headline inflation rate easing from 1.7% to 1.6%, demand for the Pound looks set to weaken as we move further away from the BOE’s 2% target. Rate cut odds have already risen following last week's vote so a weaker number could see these odds in increase, anything other than a drop in this number could see the quid move higher.

Key Movers

Big news overnight was the RBNZ’s decision to keep interest rates on hold at 1%. The overnight release had long been forecast for the central bank to cut to 0.75% so the surprise move caused shockwaves across kiwi pairs. GBP/NZD rallied from 1.94 to 2.04 hitting a high last seen mid-October. NZD/USD rocketed 90 points, from 0.6330 to 0.6420 before settling at 0.6420. The RBNZ, with refreshing honesty, said nothing had materially changed situation-wise since the last meeting, and that the three cuts delivered this year were more than sufficient for now.

President Trump spoke at the Economic Club in New York overnight. Markets were eagerly hoping for more insight into the state of the US and China trade talks. It was a bit of a ‘mud slinging’ sentiment form the president threatening to raise tariffs even higher if the US didn’t get an ‘acceptable conclusion’. The President also threatened to tariff other countries who “mistreated” the US as well.

Eurozone news came in the way of the German and European ZEW economic. Confidence in both Germany and the wider currency union showed solid signs of improvement in November, with the overall Eurozone index bouncing back from -23.5 to -1.0 on the month. It did little much on the currency front and the single bloc is still being battered by the ongoing concern of a slowdown. GBP/EUR continued its advance and hit a 6 month high of 1.1682 and EUR/USD continued its steady decline, at the time of writing we are falling very close to the 1.10 handle.

Later today we hear from the FED chair, Jerome Powell and the US releases its monthly CPI.

Expected Ranges

GBP/EUR: 1.1610 - 1.1680 ▼

GBP/USD: 1.2780 - 1.2860 ▼

GBP/AUD: 1.8650 - 1.88 ▼

GBP/NZD: 1.9920 - 2.0310 ▼