The dollar pauses for thought

The dollar begins a modest rally as markets await today's inflation figures.

Previous Day's Market Highlights

The dollar tentatively rallied from yesterday’s three month low, adding 0.5% against a basket of peers as market participants took profit ahead of a potential resolution to the US government shutdown and other geopolitical risks. Fed Chair Powell also gave the dollar a boost when addressing the Washington Economic Club despite sticking to the same message as last Friday, remarking that the Fed can afford to be patient given recent inflation data. The support for the dollar came when Powell confirmed that the Fed's balance sheet will be "substantially smaller" than it is now, thus implying that the balance sheet will be shrunk more aggressively in the near-term and monetary policy will be tightened.
 
Other major pairings remained confined to familiar ranges on Thursday as a lack of major economic data allowed investors time to chew over recent market developments. Sterling dipped modestly, by around 0.2%, as it remained unlikely that PM May will be able to get her Brexit withdrawal bill through parliament next week. Rumours of a ‘plan B’, including a possible further delay to the vote abound throughout the day though the pound seemingly shrugged this off. The single currency was also little changed, with accounts from the ECB’s December monetary policy meeting providing little new information though the risk situation was described as “fragile and fluid”.
 
Economic data was once again limited, with only US weekly jobless claims and Canadian building permits of note. The former was released slightly above market expectations while the latter rebounded strongly from last month’s contraction, showing a month-over-month gain of 2.6%.
 
In other markets, European equities recorded modest gains in the region of 0.4% with US equities recording their fifth straight day of gains for the first time since September. Finally, both Brent and WTI gained around 2%, marking their seventh consecutive session of gains.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1063 1.1180 1.1018 1.45%
GBP/USD 1.2750 1.2803 1.2440 2.84%
EUR/USD 1.1520 1.1570 1.1269 2.60%
GBP/AUD 1.7677 1.8190 1.7425 4.21%
GBP/NZD 1.8682 1.9025 1.8354 3.53%
GBP/CAD 1.6829 1.7392 1.6765 3.61%

Today's Market Highlights

It is a busy economic calendar to end the week, with the focus of investors’ attention likely to lie with this afternoon’s release of the latest US CPI inflation figures. Expectations are for both core and headline CPI to remain steady at 2.2% on a year-over-year basis, however, with the Fed becoming more dovish and data dependent over the last few weeks, the figures will be closely examined by market participants in an attempt to gauge the pace and extent of monetary policy tightening this year.
 
While price action in sterling pairings will likely be limited once again due to the ongoing Brexit debate, the release of monthly GDP figures for November 2018 will give the market some food for thought. Expectations are for an increase of 0.1% on a month-over-month basis, with such a figure likely to provide some reassurance that the UK economy is ticking along despite the uncertainty that currently prevails. A host of other industrial and manufacturing production figures are also slated to be released, with expectations that they will bounce back from negative growth in the previous month.
 
Other data is of a lower tier, and unlikely to have a major effect on the markets, however includes the latest set of eurozone economic sentiment figures. Looking ahead to next week, calendar highlights include the meaningful parliamentary vote on the Brexit deal, inflation figures from the UK and Canada. In addition, focus will remain on the continuing government shutdown in the US which, if it extends past the weekend, will become the longest on record.

Today's Economic Calendar

Time Currency Release Consensus Previous
9:30am GBP GDP (m/m) 0.1% 0.1%
9:30am GBP Manufacturing Production (m/m) 0.3% -0.9%
1:30pm USD CPI (y/y) 2.2% 2.2%
1:30pm USD Core CPI (y/y) 2.2% 2.2%