Geo-political Risk and U.S Inflation to Drive the Greenback

While the ECB monetary policy meeting minutes and Brexit will be eyed, U.S inflation figures could have a far greater influence this afternoon.
Bob Mason
Weak Inflation
Weak Inflation

Earlier in the Day:

There were no material stats released through the Asian session this morning, leaving the markets to consider U.S inflationary pressures following the release of wholesale inflation numbers on Wednesday ahead of this afternoon consumer price numbers.

Other pressures continue to include the built-up tensions between the U.S and China and market concerns over what lies ahead for the Italian coalition and the much talked about budget that could get nasty should the coalition’s first budget be rejected.

At the time of writing, the Japanese Yen stood at ¥112.19, up 0.07% for the session, with the Aussie Dollar and Kiwi Dollar finding support. The Kiwi Dollar was up 0.23% to $0.6464, with the Aussie Dollar up 0.14% to $0.7065, the pair having struggled amidst the ongoing geo-political tensions, with gains through the early part of Wednesday reversing as the day progressed off the back of upward momentum in U.S Treasury Yields and risk off sentiment across the global financial markets.

In the equity markets, the cues came from Wednesday’s sell-off in the European and U.S majors, the Nikkei sliding by 3.21%, pressure coming from a rebound in the Yen alongside the rise in geo-political risks, with the ASX200 down 1.71%.

For the CSI300 and Hang Seng, the pair followed in the path of the other majors early on, the Hang Seng opening down 3.05%, with the CSI300 down 3.11% at the time of writing, with the U.S futures showing little hope of a rebound from yesterday’s losses in the early part of the day.

The Day Ahead:

For the EUR, economic data through the day includes finalized September inflation figures out of French and Spain, with the ECB monetary policy meeting minutes also due out later in the day.

Focus will be on the monetary policy minutes, with finalized inflation numbers unlikely to have an impact on the day, barring material deviation from prelim figures.

Of particular interest will be whether Draghi’s post press conference view on inflation was discussed during the ECB gathering and whether there had been any discussion on how to address any acceleration in inflation in the coming months. For the ECB to consider a shift in policy on deposit and interest rates, a more positive view on wage growth would be needed. On the bearish side for the EUR, there could be concern over the ongoing trade war between the U.S and China and the possible effects on the Eurozone economy.

At the time of writing, the EUR was up 0.13% to $1.1535, with budget chatter from Italy and the ECB minutes the key drivers for the EUR.

For the Pound, there are no material stats scheduled for release through the European session, leaving the Pound in the hands of Brexit chatter that has drawn the bulls out of the woods, news of the EU easing its position on the Irish border bringing trade talks into focus, not to mention easing concerns over the EU being unwilling to form an agreement.

Earlier in the Asian session, the UK RICS House Price Balance numbers for September were released, with the headline house price balance falling to -2%, which was worse than a forecasted rise to 2%, a shift in sentiment towards the housing sector coming in the wake of BoE Governor Carney’s dire warnings over the housing sector should Britain stumble out of the EU without a deal. The stats had limited impact on the Pound however, Brexit in focus.

At the time of writing, the Pound was up 0.09% to $1.3208, with Brexit chatter to influence through the day.

Across the Pond, focus will be on September inflation figures and the weekly jobless claims numbers, the key driver through the day expected to be the inflation numbers that are forecasted to be Dollar positive.

The markets have already begun getting edgy over FED policy that has seen Treasury yields spike. A pickup in the annual rate of inflation will see the markets begin taking an even more hawkish stance on policy and the rate path, though one does question whether the FED will be willing to take a more aggressive rate path from current projections.

At the time of writing, the Dollar Spot Index was down 0.10% to 95.416, with today’s inflation figures and chatter from the Oval office needing consideration through the day.

For the Loonie, economic data is limited to August new housing price figures that are unlikely to provide direction for the Loonie, a string of housing sector numbers in the week having left the Loonie in the hands of market risk appetite and direction of crude oil prices that will likely continue through the day.

The Loonie was up 0.05% at C$1.3061 against the U.S Dollar at the time of writing.

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