Brussels, Capitol Hill and Nonfarm Payrolls to Drive the GBP and USD

Earlier in the Day:

It was a busy day on the data front through the Asian session this morning. Japan’s 2^nd estimate GDP figures for the 3^rd quarter impressed, with the economy growing by 0.6%, quarter-on-quarter and by 2.5% year-on-year. Initial estimates were for the economy to have grown by 0.3% (QoQ) and by 1.4% (YoY).

The upward revision was attributed to stronger than initially estimated private sector capital spending, with capital spending up by 1.1%, well above the initially estimated 0.2% rise. Thanks to Prime Minister Abe’s economic wizardry, that’s the longest period of growth for the Japanese economy since 2001 and cements his position for now.

Japan’s economic rebound has been largely export driven, with household spending still failing to provide support to the economy. The weaker Yen has helped and there’s been little noise from the Oval Office on the BoJ and Prime Minister Abe’s policy on pegging back the Yen to support growth. Until wage growth picks up and household spending gets a boost, the economy continues to be beholden to the direction of the Yen.

China’s trade figures also impressed, with exports rising by 12.3% and imports by 17.7%, both well ahead of October and forecasted figures, with China’s U.S Dollar trade surplus widening to $40.21bn in November. The upbeat figures provided some much needed support to the Aussie Dollar, which has taken quite a blow this week.

At the time of writing, the Aussie Dollar was up 0.01% at $0.7512.

The risk on sentiment through the session saw the Yen ease back 0.24% to ¥113.36, as the Asian major indexes moved north, led by the Nikkei at the time of writing, up 1.03% supported by the softer Yen.

The Day Ahead:

Key macroeconomic out of the Eurozone this morning is limited to Germany’s October trade figures, which are forecasted to be EUR negative. Any better than expected numbers will provide the EUR with some temporary relief, though the day ahead will be hinged on data out of the U.S, events on Capitol Hill and whether the European equities can carry on the Asian gains through to the close.

At the time of writing, the EUR was down 0.10% at $1.1761.

It’s a big day for the Pound. The EU’s deadline for the British government to resolve the deadlock with Northern Ireland’s DUP is today. Hopes of a resolution had provided the Pound with strong support on Thursday. British Prime Minister May is expected to be meeting Juncker today in Brussels following overnight talks. The Pound will be at the mercy of an anticipated press conference ahead of the European open this morning, with Donal Tusk also due to make a Brexit statement this morning.

If Tusk gives the green light for trade talks to commence, we can expect a strong response in the markets, with the Pound likely to push for $1.36 levels.

On the data front, industrial and manufacturing production and trade figures for October will likely play a minor role through the day, with Brexit being the key area of focus today.

At the time of writing, the Pound was up 0.16% at $1.3495, supported by optimism over Brexit talks and hopes of progression into the next phase of negotiations.

Across the Pond, it’s also a big day for the Dollar, with November labour market figures scheduled for release. As always, focus will remain on the nonfarm payrolls and wage growth figures with wage growth expected to be of greater significance. Few will disagree that the labour market is at or near full employment. The missing piece of the jigsaw remains wage growth, which is not only needed to fuel inflation, but also give the FOMC doves something to cheer about.

Market sentiment towards the FED’s rate path projections for next year are mixed and with inflation continuing to fall short of the FED’s 2% objective, the weakness in the Dollar through the year is largely reflective of sentiment towards monetary policy and not the U.S economy.

While the data will have an impact on the Dollar, the markets needing to keep an eye out for any material revisions to October’s nonfarm payroll numbers, Capitol Hill will also play its part. While the markets are currently not expecting the government to shutdown tonight, the possibility of Trump failing to address the debt ceiling issue remains and would certainly hit the Dollar hard. Tax reforms on the other hand have been Dollar positive, with this afternoon’s stats also expected to support the Dollar through to the close.

Certainly plenty of drivers for the Dollar through today’s U.S session, the best possible outcome being for Trump to obtain the necessary funding for the government and for the stats to impress following a week of some mixed data.

At the time of writing, the Dollar Spot Index was up 0.04% at 93.831.