Brexit and Trade Chatter to Drive the GBP and USD

Earlier in the Day:

Economic data released through the Asian session was on the lighter side this morning, with key stats limited to Japan’s August inflation figures and September’s prelim manufacturing PMI.

For the Japanese Yen,

On inflation, Japan’s national core CPI rose by 0.9% Year-on-year, which was in line with expectations and, whilst the annual rate of core inflation picked up from July’s 0.8%, continued to fall well below the BoJ’s 2% objective. Month-on-month, consumer prices rose by 0.5%.

Japan’s manufacturing PMI rose from 52.5 to a 3-month high 52.9 in September, according to prelim figures, coming in short of a forecasted increase to 53.1.

• Input cost inflation accelerated at the fastest pace since Mar-11, while output prices increased at a slower pace from the previous month.
• New orders increased at a faster pace, with new export orders.
• The pace of hiring slowed, with backlogs building by a greater amount in the month.
• While firms remained optimistic about the economic outlook, business confidence fell to a 22-month low, with the decline attributed to geo-political tensions and ultimately trade.

The Japanese Yen moved from ¥112.433 to ¥112.455 against the Dollar upon release of the figures, before easing to ¥112.53 at the time of writing, down 0.04% for the session.

Elsewhere, the Kiwi Dollar and the Aussie Dollar were in the red following strong gains through the week. The Aussie Dollar was down 0.11% to $0.7284 at the time of writing, with the Kiwi Dollar down just 0.01% to $0.6684, minor data out of New Zealand providing support, visitor numbers seeing a marked increase year-on-year in August.

In the equity markets, the softer Yen and pickup in manufacturing sector activity provided support to the Nikkei, which was up 0.52% at the time of writing, with the Hang Seng and ASX200 up 0.26% and by 0.57% respectively, overnight gains in the U.S providing support early on, while the CSI300 bucked the trend, down by 0.07%.

The Day Ahead:

For the EUR, following a particularly quiet week on the data front, key stats scheduled for release through the morning include finalized 2^nd quarter GDP numbers out of France and prelim September private sector PMI numbers out of France, Germany and the Eurozone.

The markets will be looking for any negative effects from the ongoing trade war between the U.S and China, with any better than expected PMI numbers likely to provide the EUR with another boost. The devil will be in the details, with focus likely to be on new orders and wholesale inflation.

At the time of writing, the EUR was up 0.03% to $1.1781, with today’s stats and noise from the Oval Office the key drivers through the day.

For the Pound, it’s a quiet day on the data front, leaving the markets to focus on Brexit chatter, some updates from the EU Summit to be expected as Prime Minister May looked to gains support for the much talked about Chequers plan.

Early news from Salzburg was less than positive, with Donald Tusk lashing out by saying that the plan just won’t work. Tusk wasn’t alone, with French head of state Macron also jumping in, saying that the PM’s blueprint is unacceptable.

The fact that the Pound managed to hold its ground was impressive, though impressive August retail sales figures release on Thursday gave much needed support. Deal or “no-deal” is the question and economic data may provide some upside, but in the end it may be for nothing should Britain stumble out of the EU as time runs out.

While Brexit will remain the main area of focus, the BoE quarterly bulletin due out in the early afternoon will also have some influence, August inflation and retail sales figures suggesting that the BoE may not need to wait as long as had been anticipated should Britain and the EU separate on friendly terms.

At the time of writing, the Pound was up 0.02% to $1.3268 with Brexit and the BoE’s quarterly bulletin the key drivers for the day.

Across the Pond, stats scheduled for release through the day are limited to September’s prelim manufacturing and services PMI numbers that are forecasted to be Dollar positive.

With the markets beginning to focus on next week’s FED meeting and with a December rate hike largely expected, it’s got to be some quite dire numbers to hit the Dollar, any better than expected moves likely to have a limited impact, focus remaining on the Oval Office and trade chatter.

At the time of writing, the Dollar Spot Index was down 0.02% to 93.889, with direction in the hands of Trump and manufacturing PMI numbers through the day, a material improvement in sentiment towards trade leading to the Dollar’s 0.66% slide on Thursday, a bounce in the Philly FED manufacturing index doing very little on the day.

For the Loonie, economic data scheduled for release includes August inflation and July retail sales numbers. While inflation numbers are on the softer side, with core inflation forecasted to ease by 0.1%, retail sales figures may well be the key driver on the day, better than expected numbers supporting a pickup in inflation in the months ahead, with the BoC poised to make a move.

Outside of the numbers, NAFTA will remain an area of focus and, while there are no expectations of a conclusion to talks this week, positive progress would provide the Loonie with further support.

At the time of writing, the Loonie was down 0.01% to C$1.2904 against the U.S Dollar.