Morning Report: 20 November 2018

November 20, 2018

GBP. Sterling had a volatile session yesterday but ultimately closed slightly higher against the US dollar. Theresa May’s position seems to be improving somewhat, as another day passes without firm signs of a vote of no confidence. Mark Carney and fellow Bank of England decision makers will appear before the Treasury Select Committee today, discussing the Bank’s most recent forecasts and, inevitably, Brexit. The BoE has previously blamed Brexit for creating uncertainty and causing businesses to delay investment and agreed in October to report on how any withdrawal agreement would affect the economy. Although arch Eurosceptics such as Steve Baker and Jacob Rees-Mogg are no longer on the committee, the questioning nonetheless has the potential to lead to market-relevant statements being made. Aside from the testimony at 10:00 GMT, the Confederation of British Industry will release its Industrial Order Expectations survey at 11:00.

EUR. EUR may have finally cracked the code what it takes to move to the top of the G10 currency board, as the euro mostly stayed out of the limelight and yet managed to broadly strengthen. The Eurozone Trade Balance showed an unexpected dip to a surplus of €16.3 billion for September. This can weigh on Eurozone growth in 2018, as exports of goods in recent quarters added to Gross Domestic Product Growth for the economic bloc. Today Eurozone Finance Ministers meet throughout the day in Brussels, with European Central Bank’s Jens Weidmann speaking at 15:00 GMT.

USD. USD softened across the board again yesterday and is further retracing from the 17-month highs seen last week. A potential catalyst for this weaker dollar is that futures markets are pricing in a full rate hike less by the end of 2019 since the Federal Reserve’s rate announcement at the start of November. Recent Fed speakers reigned in some of the rate bulls by acknowledging slowing global growth may limit the need of further rate hikes, while also some more action on the data front is needed for the Fed to move into a higher gear in 2019. We note though that Fed Chair Jerome Powell mentioned not too long ago that the economy is in “exceptional times” and that he sees no signs of the economy heading for a sugar crash as the fiscal stimuli of Trump start to fizzle out. The risks of a complete dovish overhaul, therefore, seem unfounded and the recent repricing seems more like a correction of earlier overenthusiasm. Housing data may offer the fundaments to renewed dollar strength today with Building Permits and Housing Starts at 13:30 BST.

CAD. The loonie was on the back foot against USD yesterday amid quiet news flow but has since rallied somewhat. The Bank of Canada’s Deputy Governor Caroyln Wilkins will speak today at 17:45 GMT, and is expected to directly address monetary policy issues as they relate to other policy areas.

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