Theresa May to Move the GBP, with Service PMIs to Drive the EUR

Earlier in the Day:

Stats were on the lighter side out of Asia this morning, with data limited to New Zealand’s inflation expectations. For the fourth quarter, the RBNZ business survey saw inflation expectations rise from 1.77% to 1.87%. The more relevant 2-year time horizon was Kiwi Dollar negative however, with inflation expectations easing from 2.09% to 2.02%.

The Kiwi Dollar fell from $0.69038 to $0.68910 upon release of the numbers. The softer 2-year expectations figure gives more evidence that the RBNZ is likely to be on the dovish side this Thursday.

For the Yen it was a session in the red, down 0.21% to ¥114.31. There’s plenty to consider with Trump’s visit to Asia another factor, as Trump calls for a fairer bilateral trade agreement with Japan. The Nikkei coughed up gains from earlier in the day in response to Trump’s comments, before recovering to end the day up 0.05% at 22,548.35.

Other majors were also in the red, with Trump’s protectionism approach likely to lead to calls for fairer bilateral trade agreements elsewhere in the region. The ASX200 closed down 0.1%, with the Hang Seng in the red at the time of writing.

The Aussie Dollar gave up early gains to sit flat against the dollar at $0.7651 at the time of writing. Focus will be on tomorrow’s RBA interest rate decision and the all-important rate statement. Following last week’s trade figures, the RBA will perhaps talk positively over the economy, whilst being slightly cautious not to drive the Aussie Dollar. The disappointing retail sales figures and softer inflation figures for the 3^rd quarter will likely weigh on the Aussie Dollar however. It would be a surprise for the RBA to discuss of a shift in policy in tomorrow’s statement

The Day Ahead:

It’s all eyes on the EUR for the day, with stats out of the Eurozone including October’s finalized service sector PMI numbers and Germany’s factory orders. Factory orders are forecasted to be on the slide again in September, which will be a EUR negative, whilst the PMI numbers could provide support. The numbers will need to be in line with or better than prelim’s however.

We’ve seen the EUR continue to hover at the low to mid $1.16 levels following the ECB’s tapering and barring any catastrophe in the U.S, we’re unlikely to see any major moves north for now.

Trump’s tour of Asia has already led to the discussion of fairer bilateral trade agreements. Whilst this may send some jitters through the Asian markets, this may become a positive for the U.S economy. Time will tell. One does wonder whether Trump will have similar intentions with EU trading partners. Previously, Germany had been singled out as one exporter benefiting from the soft EUR.

With no material stats out of the UK this morning, politics will be the key driver for the Pound. The British Prime Minister is scheduled to speak at the CBI Conference today and the Pound may well respond to Brexit chatter. It’s not just the PM’s view however, with any noise from the EU also needing to be factored in. At the time of the report, the Pound was down 0.05% at $1.3071. Any talks of a “no deal” will be the negative. Such an outcome would certainly raise the likelihood of Theresa May being ousted and another General Election, none of which is good for the Pound.

There are no material stats scheduled for release out of the U.S this afternoon to provide direction. FOMC voting member Dudley is scheduled to speak, which could provide a boost should there be any hawkish commentary.

For the Dollar, focus will remain on the U.S administration, progress on tax reforms and the general outlook towards the U.S economy. Friday’s labour market numbers reflected the lingering effects of Hurricanes Harvey and Irma, which allowed the Dollar to stand its ground at the end of the week. The markets won’t be so forgiving next time around.

At the time of writing, the Dollar Spot Index was down 0.02% at 94.925, with the EUR up just 0.01% at $1.1609.