It’s Judgement Day for Theresa May and the Pound

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Earlier in the Day:

Economic data released through the Asian session this morning was on the lighter side, with key stats limited to 4 th quarter business confidence numbers out of New Zealand.

For the Kiwi Dollar , 4 th quarter business confidence saw a marked improvement in the 4 th quarter, according to the latest NZIER Quarterly Survey of Business Opinion (QSBO) released in the early hours.

A net 18% of firms expected economic conditions to deteriorate in the coming months, improving from a net 28% in the previous quarter. According to the lates t report :

  • Businesses reported a pickup in demand in the December quarter, with both own activity in the 4 th quarter and expectations for the 1 st quarter of this year on the rise.
  • A net 4% of businesses reported an increase in demand in the final quarter of 2018.
  • There was a reported rebound in hiring, with intentions to hire in the quarter ahead also positive.
  • Cost pressures remain however, with firms unable to pass on cost increases to customers, weighing on profitability. A net 22% of businesses reported a deterioration in profitability in the 4 th A net 15% expecting profitability to worsen in the 1 st quarter of this year, the weakest level since Mar-11.
  • Weak profitability continued to weigh on the manufacturing sector, which remained the most pessimistic, businesses downbeat in spite of a pickup in demand.

The Kiwi Dollar moved from $0.68202 to $0.68219 upon release of the figures, before rising to $0.6834 at the time of writing, a gain of 0.18% for the session.

Elsewhere, the Japanese Yen was down 0.18% to ¥108.35, while the Aussie Dollar was up 0.17% to $0.7209 at the time of writing, market risk appetite in the early part of the day weighing on the Japanese Yen.

The recovery in the U.S equity markets through Monday’s session, to limit losses for the day and gains in the futures in the early part of this morning have provided early support to the Aussie and Kiwi Dollar.

The Day Ahead:

For the EUR , it’s a busy day ahead, with key stats scheduled for release through the day including 4 th quarter GDP numbers out of France and Germany, finalized December inflation figures out of France and Spain and November trade data out of the Eurozone.

While we can expect the EUR to react to the GDP numbers, direction through the day will ultimately be hinged on market risk appetite ahead of a scheduled ECB Draghi speech later in the day. With economic data out of China raising more red flags, any policy talk is likely to be EUR negative, though whether Draghi can rebalance policy divergence in favour of the Dollar remains to be seen.

At the time of writing, the EUR was up 0.06% to $1.1476.

For the Pound , it’s not quite the day of reckoning, with the Brexit record likely to play on for another week, but it’s one of the big days nonetheless.

Parliament is scheduled to vote on Theresa May’s Brexit deal and, with the general view being that Parliament will shoot down the deal, even the British PM has noted that no Brexit was more likely than no deal and that’s a positive for the Pound.

Expect some choppiness however, with Theresa May having 3-days to convince the Establishment to break protocol and give Britain terms that would deliver an exit that even the EU would prefer to block.

At the time of writing, the Pound was up by 0.16% to $1.2884, with today’s vote the key driver and the possibility of a vote for the deal ever present despite the media reports.

Across the Pond , it’s a busier day on the economic calendar , with key stats scheduled for release including December wholesale inflation figures and January’s NY Empire State Manufacturing Index.

While we can expect December wholesale inflation numbers to have an impact on the Dollar, forecasts being Dollar negative, any bounce back in manufacturing sector activity will likely offset the negatives from wholesale inflation numbers that are widely anticipated.

On the policy front, FOMC members Kashkari, Kaplan and George are scheduled to speak, with Kashkari likely to have a lesser influence, being one of the more dovish members of FOMC.

To complicate matters further for the Greenback, the extended government shutdown and earnings will also play a hand through the day.

At the time of writing, the Dollar Spot Index was down 0.05% to 95.562.

For the Loonie , it’s another quiet day on the economic data front, leaving the Loonie in the hands of the weekly API numbers and risk sentiment following Monday’s trade data out of China and first taste from the earnings calendar.

The Loonie was up 0.12% to C$1.3269 against the U.S Dollar at the time of writing, early support coming from rising oil prices in the early part of the day.

This article was originally posted on FX Empire


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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