FX market outlook

FX market outlook

Posted on Tuesday, November 14 2017 at 9:44 am GMT+0000

Pound slides as UK parliament votes on Brexit bill; aussie bounces on business confidence

Ahead of a busy day in terms of economic data out of the UK, the US and the Eurozone, the pound moved lower as doubts over May’s leadership continued weighing on the currency, while markets were also cautious whether British lawmakers would approve the government’s Brexit bill. The aussie was the biggest winner of the session, gaining on business confidence despite disappointing figures out of China pressuring the currency.

With the UK Prime Minister Theresa May facing increasing political challenges following a report published by the Sunday Times newspaper and stating that forty Conservative MPs would sign a no-confidence letter on her leadership, the pound could not gain ground during the session, retreating 0.16% on the day to $1.3095. Inflation data out of the UK, though, could bring some volatility to the market later in the day, with headline inflation forecasted to break above 3.0%.

In the meantime, the UK parliament is ready to kick-off a two-day debate on the Brexit bill later on Tuesday, which will define Britain’s plan to leave the EU. However, the legislation is said to go through several stages in the upper and lower house of parliament before it turns into law. It might take lawmakers a total of eight days to make changes to the plan.

The dollar index was mostly flat around 94.50 during the session, finding support on higher US Treasury yields and on expectations of a third-rate hike in December, despite uncertainties regarding the US tax overhaul pressuring the currency. Figures on US producer prices will gather some attention later in the day.

Dollar/yen climbed by 0.22% to 113.85.

The dollar-denominated gold fell by 0.46% to $1,271.70 per ounce.

The euro approached a three-week high, touching a session-high at $1.1695 (+0.21%) after German preliminary figures on GDP growth for the third quarter beat expectations. According to the numbers, the German economy expanded by 0.8% q/q, while forecasts were for growth to stand at 0.6%. Year-on-year, GDP growth rose by 2.3% as expected, above the 1.0% (upwardly revised from 0.8%) seen in the previous quarter.

In the wake of Chinese data, the aussie made a fresh four-month low at $0.7608 after China’s industrial output slowed down to 6.2% y/y in October, compared to 6.3% expected and the 6.6% tracked in September. Chinese retail sales and spending on capital investments also missed expectations. However, an upbeat survey on Australia’s business conditions conducted by the National Australia Bank helped the aussie to recoup earlier losses and jump to $0.7621. The survey showed that the index of business conditions surged by seven points to +21 in October, reaching a record high. The index on business confidence climbed by one point to +8.

The kiwi, which is also sensitive to Chinese economic conditions, tumbled by 0.75% to $0.6851.

Dollar/loonie was on track to post its third day of gains, climbing slowly to a three-month high of 1.2749. The fifth round of NAFTA negotiations will start in Mexico City between November 17-21.

An ECB-organised policy panel in Frankfurt will gather some attention as well today as major chief central bankers, including the ECB’s Mario Draghi, the BOJ’s Haruhiko Kuroda, the Fed’s Janet Yellen and the BOE’s Mark Carney, might deliver important remarks on monetary policy.