Today, doves may reign in North-America

December 19, 2018


No news is good news for sterling at the moment as the pound continues a 3 day winning streak against the dollar today with little Brexit news on the agenda, apart from Prime Ministerial Questions at lunchtime. With 100 days until the Brexit deadline, much is left to the unknown still. This has capped the optimism in sterling, and with the potential for a dollar rally tonight, the pounds marginal gains may be short-lived. UK data may creep back into the fore today, in light of muted Brexit headlines, to determine the pound’s price action. Today, the Consumer Price Index measure of inflation is released at 09:30 GMT for November, which also includes transitory events like Black Friday.


The euro looked like a confused adolescent yesterday as it was looking for direction throughout the day, but in the end, it didn’t find any and ended stunned in the middle of the G10 currency pack. The German Ifo Business Climate that came out yesterday boded some glum conversations of businessmen over their Christmas dinners, as the expectations sub-index dropped to the lowest point in 4 years. The headline reading didn’t provide much reason for joy and merriness either and underperformed compared to the expectations and last month’s reading with a score of 101.0. The only silver lining in this survey was the construction component, which continues to score within a whisker of cyclical highs. Today Italian and European Commission officials meet to discuss the Italian budget for 2019 and after a conciliatory tone yesterday by EC’s Pierre Moscovici the Italian Treasury released this morning an informal deal between the two powers has already been struck.


The greenback showed little appetite to budge much yesterday in the run-up to the Federal Open Market Committee meeting tonight, with an outperformance against oil sensitive currencies being the most notable move. Strong housing market data weren’t enough to put USD in motion, with Building Permits reaching the highest point in 6 months at 1.33 million annualized for November, still close to the 11-year highs seen at the start of this year. The US dollar is slightly softer across the board as bets on a dovish Federal Reserve tonight have the upper hand, however, this implies a fair amount of dollar strength can be expected if the Fed sticks to its guns with the number of rate hikes signalled earlier. This scenario seems quite plausible, as markets currently price in only one rate hike for 2019, while inflation and survey data seems supportive for more.


The loonie cracked fresh 18-month lows against the dollar yesterday and remains stuck in a strong bearish channel after yet another day of murky waters for the oil price. At least the loonie got company from other resource sensitive currencies like the Norwegian krone as it sank deep towards the bottom of the global currency pool yesterday, with little data coming out to keep it afloat. Macroeconomic surprise indices actually indicate Canadian data has been better than expected in general after Summer, though this brings little solace to the loonie which seems to be tossed around by the whims and waves of oil price fluctuations. Finally, Manufacturing Sales underperformed as well and shrank by 0.1% in October, making it a day to quickly forget for CAD. Today’s Consumer Price Index release at 13:30 GMT may change the loonie’s fate, but a further sell-off may occur if the release confirms the Bank of Canada’s dovish stance.

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