All Eyes on Capitol Hill and the Dollar as the Pound Rallies

Earlier in the Day:

Economic data through the Asian session this morning included the all-important manufacturing PMI numbers out of China. Recent concerns over a possible slowdown in the Chinese economy look to be unjustified according to the November figures, with the manufacturing PMI rising from 51.6 to 51.8.

With Australia’s private sector credit growth and building approvals improving in October, it was a positive start to the day for the Aussie Dollar, in spite of a sell-off in the Asian equity markets.

The Aussie Dollar moved from $0.0.75642 to $0.7583 upon release of the stats. At the time of writing, the Aussie Dollar was up 0.24% at $0.7588, though for a push to $0.76 levels, there’s going to need to be some U.S Dollar weakness or a sharp bounce in oil and commodity prices. Both are likely to have direction later today, with OPEC’s meeting and the expected vote on the tax reform bill this evening in the minds of the markets.

Things were not so rosy for the Kiwi Dollar, which was down 0.52% at $0.6845 at the time of writing. This morning’s stats out of New Zealand included October’s building consents and November’s business confidence figures. Whilst building consents data was disappointing, sliding 9.6% for the month, of greater concern was a material fall in business confidence, the index falling from a negative 10.1 to a negative 39.3 in November.

The Kiwi Dollar moved from $0.68841 to $0.68486 through the data release and has been unable to recover since. Things had been looking a little better for the Kiwi Dollar, which had managed to recover to $0.69 levels at the start of the week, but the currency is particularly sensitive to the stats at the moment. Concerns linger over a possible move by the RBNZ and there is also uncertainty over how the new government will impact the economy through the next year.

For the Yen, the Dollar managed to pick up 0.24% through the session to ¥112.2, providing support to the Nikkei, which closed the day with a 0.59% gain.

A tech sell-off in the U.S on Wednesday filtered through to the Asian markets this morning, putting more pressure on the Hang Seng, as China large caps continue to see red, bringing down the China companies listed on the Hang Seng.

At the time of writing, the Hang Seng was down 1.43%, with the CSI300 down 1.06%, as Chinese government restriction on public fund investments into the Hang Seng continues to weigh on investor sentiment.

For the ASX200, the big-4 weighed on the index following news hitting the wires of the Australian government launching an enquiry into the banks. The royal commission is to address concerns in the sector, following recent scandals that have led to a fall in confidence in the financial system. The index closed out the day with a 0.69% fall.

The Day Ahead:

It’s a relatively busy economic calendar through the European session today. Key stats include Germany’s October retail sales and November unemployment figures, inflation numbers out of France, Italy and the Eurozone, together with Spain’s 3^rd quarter GDP numbers.

The Eurozone’s inflation figures will be the key driver for the EUR, assuming that Germany’s unemployment numbers remain steady. A pick up in the annual rate of inflation could see the EUR recover to $1.19 levels, though how long such a gain can be retained will be dependent upon events later today on Capitol Hill.

At the time of writing, the EUR was up 0.13% at $1.1862, easing back from an intraday high $1.1871.

Across the Channel, things are looking up for the Pound, which has gained 0.47% to sit at $1.3472 at the time of writing.

It’s all about Brexit for now and the news of the British Government having agreed on Britain’s divorce bill with the EU has driven Sterling this week to its highest level since late September, when the Pound had last closed at $1.35 levels. Stats out of the UK are limited to November house price figures that are unlikely to have a material impact through the day. It’s now going to come down to how tough a stance the EU will take on trade with Britain. Britain is considered a key trading partner with the EU, so it’s not going to be in the EU’s best interest to play hard ball. Looking at the direction of the Pound, it does seem to be the market’s way of thinking. But, as we have seen since Article 50 was invoked, the Establishment has been more eager to deter other members from breaking away than to give Britain safe passage out.

Across the Pond, it’s another busy day ahead for the markets. Key stats scheduled for release this afternoon include the FED’s preferred Core PCE Price Index figures for November. The Beige Book released on Wednesday had pointed to a pickup in inflation. Should the numbers translate into a stronger than expected Core PCE Price Index, sentiment towards the FED’s rate path for next may change once more in support of the Dollar.

Other stats include October’s personal spending, November’s Chicago PMI and the weekly jobless claims figures, which will also have their influence on the Dollar, though perhaps key for the Dollar today will be the anticipated tax reform bill vote. Hopes are high that the bill will pass, which leaves the Dollar in a vulnerable position through the U.S session.

At the time of writing, the Dollar Spot Index was flat at 93.16 in what has been a relatively choppy start to the day. We can expect the uncertainty over today’s vote to be reflected in the Dollar, with any material gains likely to be on hold until the vote.