Morning Report: 19 November 2018

November 19, 2018

GBP. Despite last week’s rollercoaster, sterling only closed out the week a percentage point lower than it had opened on Monday. Brexit remains the curveball, with rumours continuing to simmer in the background regarding a Tory revolt, but for the time being, it looks as if Theresa May has escaped yet another tight spot. With little in the way of top-tier data for sterling this week, political headlines will continue to dictate the pace of pound trading. On the 25th of November the current Brexit deal is planned to be ratified by the Special European Council, however, this summit may be more about the preparation of a hard Brexit if the prospects of the deal passing the UK Parliament do not improve before then. This week is light on economic data for the UK, with the Bank of England’s inflation report hearings in front of Parliament’s Treasury Committee the only highlight.

EUR. No news is good news was the adage for euro on Friday as the single currency stayed out of the limelight but nevertheless managed to make gains across virtually the entire G10 currency pack. Somewhat surprising maybe, as European Central Bank President Mario Draghi gave a speech at the European Banking Congress and admitted that ECB confidence in long-term inflation pressures is eroding. This is quite the change in communications, as the ECB remained doggedly optimistic about medium-term inflation expectations, despite data broadly coming in below the mark for 2018. This week sees the meeting of Finance Ministers on Tuesday, ECB meeting minutes on Thursday and Flash Purchasing Manager Indices on Friday. The Italian budget deficit will likely be addressed on Wednesday as the EU publish their full remarks. This may see Italian finances being placed in a formal review process by the EU.

USD. The dollar broadly sold off last week against its G10 counterparts after speakers of the Federal Reserve struck a dovish tone, which caused potential 2019 Fed rate hikes to be repriced in future markets. The broad dollar DXY composite index now sits quite the distance away from last Monday’s 16-month high – and last week’s fall represents its first weekly loss since mid-October. The most exciting development last week came from the new Fed Vice Chairman Richard Clarida. Clarida stated that the Fed was edging closer to its neutral rate, which would see neither the economy contract nor expand. This resulted in the market repricing the probability for 4 further rate hikes by the Fed next year from 33% to 10%, suggesting 3 may be sufficient. The reaction was relatively strong on Friday, however, and could see a clawback before the end of the year if the forthcoming data suggests the US economy continues to fire from all cylinders. The dollar may therefore not be done just yet. This week the data calendar remains light, however, with Core Durable Goods on the menu on Wednesday and stuffed turkey on Thursday, as Americans celebrate Thanksgiving and enjoy a bank holiday.

CAD. Things looked fairly dire for the loonie at the beginning of last week, as Crude Oil prices entered a bear market and the US dollar remained well bid. However, by the end of the week, the loonie managed to post a small rally amid a broad greenback slide. Data and OPEC will be the two main themes for this week, with the oil producers’ cartel meeting on Tuesday widely expected to see a production cut. Bank of Canada Deputy Governor Carolyn Wilkins will also speak on Tuesday, addressing monetary policy. The week’s main data release will come on Friday when Consumer Price Index data will be released alongside Retail Sales.

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