Home Daily Commentaries Traders demonstrate caution ahead of US GDP and Fed Chair’s keenly awaited speech

Traders demonstrate caution ahead of US GDP and Fed Chair’s keenly awaited speech

Daily Currency Update

GBP/USD trended lower through Tuesday’s morning session amid a lack of any meaningful and positive Brexit headlines. Trump’s comments the previous night, when he indicated May’s Brexit deal wasn’t a good one, got a negative reaction from Cable traders the following morning in London. The dollar was also well bid through much of the day yesterday, with month-end dollar buying kicking in a little earlier than usual and risk sentiment turning weaker as Trump talked auto tariffs, again.

There isn’t much by way of UK economic data due this morning, so the key driver will likely be Brexit headlines/rhetoric and the risk play. The Bank of England Financial Stability Report is due to be released this evening, along with Bank Stress Test Results, followed by a speech from BoE Governor Carney. The central bank will be publishing assessments for various Brexit scenarios, measured against a comparison of remaining in the EU. Should be interesting! Around the same time, US Fed Chair Powell is speaking about monetary policy, a keenly awaited speech. In advance of all this, Q3 GDP is released from the States, also a keenly awaited set of data, and so it all makes for a potentially volatile afternoon session for GBP/USD this afternoon.

Key Movers

The US dollar index edged higher on Tuesday touching a high of 97.50, shrugging off less hawkish than expected comments from Fed member Clarida yesterday afternoon, who said that monetary policy is not a pre-set course. He mentioned that interest rates were closer to neutral but there is no agreement at the FOMC about ‘how close’ to neutral they are. He said hikes should be dependent, noting that it was important to see capex rebound after a soft result in Q3.

In a separate speech, Atlanta Fed President Raphael Bostic said the central bank "is not too far" from a neutral interest rate and “neutral is where we want to be”. The Fed has raised rates three times this year and is expected to increase again in December.

It’s a big day for the dollar today. No doubt the US/China trade rhetoric will ramp up in the run up to the G20 on Friday. Meanwhile, US Q3 GDP is due for release with the market looking for a print of 3.6% q/q. Fed Chair Powell is due to speak later on too, in what’s being touted as his most important speech yet. Investors will be looking to the speech for any softening in his tone after he indicated in October that the Fed was not close to halting rate hikes.

In the absence of local economic data the EUR/USD traders once again turned their attention to Italy’s ongoing budget saga. Early reports yesterday suggested that Italy was set to cut its planned deficit target for next year. However, not long after, Italy’s deputy Prime Minister Matteo Salvivi indicated Italy will not submit a revised budget to the EC.

EUR/USD was also weighed by the more negative risk sentiment, and the associated strengthening impact this had on the greenback. In a similar move to this same time yesterday, EUR/USD has gapped lower by 20-25 points or so, and opens this morning at 1.1275.

AUD/USD has traded a steady range over the last 24 hours. It fell towards the end of the day in London on Tuesday, as did most other currencies vs. the dollar. Falling commodity prices haven’t helped either, with iron ore prices falling significantly over the last few days.

In other news overnight, Australian Construction Work Done (data) printed weaker than expected, albeit it didn’t affect the currency as traders remain cautious ahead of the US GDP print and Fed Chair Powell’s speech later today.

The Canadian dollar fell through trade on Tuesday. Investors looked to safe haven assets, selling commodity linked currencies as trade tensions continue to weigh on market demand for risk. Comments from Trump in the Wall street Journal suggest the US will move ahead with increasing tariffs on 200bn of Chinese imports from 10% to 25% in January regardless of a resolution in recent trade hostilities at this weekend’s G20 summit, which didn’t help the loonie’s cause.

Despite a bounce in oil prices, the CAD continues to test new year to date lows and remains vulnerable to broader risk trends and trade headlines. Attentions remain affixed to US China Trade Talks this week, wherein a temporary détente could foster short term support for the CAD.

Like the AUD/USD pair, NZD/USD has traded a steady range overnight. There wasn’t much of a reaction to the release of the RBNZ Financial Stability Report overnight, at which point the central bank announced it was easing the loan-to-value ratio restrictions slightly. The bank also said that they thought risks to the NZ financial system has “abated a little over the past six months”. RBNZ Governor Orr later told reporters that “both mortgage credit growth and house price inflation have eased to more sustainable rates, reducing the riskiness of banks’ new housing lending”. Local traders now look to local ANZ Business Confidence data, due for release later tonight.

Expected Ranges

  • GBP/USD: 1.2650 - 1.2850 ▼
  • GBP/EUR: 1.1260 - 1.1400 ▼
  • GBP/AUD: 1.7580 - 1.7790 ▼
  • GBP/CAD: 1.6900 - 1.7150 ▼
  • GBP/NZD: 1.8660 - 1.8980 ▼