Previous Day's Market Highlights
Sterling recorded modest gains on Tuesday, adding around 0.2% against the dollar, as the Prime Minister gave the House of Commons a further update on the progress of the Brexit negotiations as well as confirming that MPs would have another chance to voice their opinion on the way forward in negotiations if no deal were to be reached by 27 February. Such a move is likely to render this week’s planned vote a damp squib, with both pro- and anti-EU MPs likely to hold fire with amendments until the end of the month, giving PM May more time to negotiate. The Prime Minister plans to meet with the EU in the coming weeks, though any compromise remains unlikely with the pound set to remain vulnerable to any Brexit-related news, especially as the clock ticks down to the 29 March deadline.
Elsewhere, a risk-on tone began to emerge with safe-haven currencies losing ground as news broke of an “agreement in principle” in Congress to avoid another US government shutdown combined with positive rhetoric from US-China trade talks, with President Trump planning to meet his Chinese counterpart “very soon”. The risk-sensitive Aussie dollar gained around 0.4% while the Swiss franc and Japanese yen both lost ground. In addition, the dollar pulled back from its highest levels of the year, snapping an eight-day winning streak, despite job openings data reaching the highest level since reporting of the series began. The single currency also gained, adding around 0.3%, despite cautious comments from the Dutch central bank governor urging the ECB to hit pause on plans to rollback its crisis era stimulus.
Overnight, the RBNZ kept interest rates on hold as expected, however markets were caught out by the Bank’s less-dovish than expected tone. The main surprise to markets stemmed from the RBNZ pushing back the planned timing of their first rate hike to mid-2021, rather than removing it altogether. In reaction, the Kiwi dollar jumped around 1.6% against its US counterpart.
Away from FX, European equity markets gained, with the pan-European STOXX600 adding more than 0.5%, while US markets gained over 1% as investors were reassured by the tentative agreement to avoid another government shutdown. Finally, both Brent and WTI gained over 2% as Saudi and OPEC-led production cuts continued to tighten the market and underpin prices.
|Currency Pairing||08:00 Today||Vs 08:00 Yesterday||Four-Week High||Four-Week Low||% Change|
Today's Market Highlights
Inflation data comes into focus today with CPI figures set to be released from both the UK and US. This morning’s UK release is expected to show a slight downtick in inflation to 2% on a year-over-year basis, bringing it in line with the Bank of England’s target level. Though Brexit-related news is set to remain as the main driver of sterling, a more subdued headline inflation reading could decrease the likelihood of a Bank of England hike post-Brexit. Across the pond, the US release will also be closely watched after last month’s fall which was led by a tumble in oil prices and in the context of a data-dependent Federal Reserve. Headline inflation is expected to have fallen by a further 0.3% in January to only 1.6% on a year-on-year basis though the core CPI figure, which excludes energy and food prices, is set to remain largely unchanged at 2.1% year-on-year. Today’s releases are important for both the dollar’s next move after its recent gains, and the timing of their next rate hike.
Other notable economic releases include industrial production figures for the eurozone, expected to fall for a second consecutive month in addition to GDP figures from Japan later this evening. Growth for the final quarter of last year, when measured on a quarter-on-quarter basis is expected to bounce back into positive territory, largely due to an increase in capital expenditure and public spending. However, the catalyst for the next move in the yen is likely to come from geopolitical risk rather than economic data, with Japan’s economy continuing to lag behind global peers.
Finally, central bank speakers are once again in focus with speeches from the Fed’s Bostic and RBNZ Governor Orr scheduled. It is likely that Bostic will stick to the Fed’s now-familiar script of emphasising patience, while the RBNZ’s Orr is unlikely to provide much in the way of fresh information after the Bank’s policy decision overnight.
Today's Economic Calendar
|10:00am||EUR||Industrial Production (m/m)||-0.4%||-1.7%|
|1:30pm||USD||Core CPI (y/y)||2.1%||2.2%|
|11:50pm||JPY||GDP - Q4 18 (q/q)||0.4%||-0.6%|