Theresa May and Trump to Drive the GBP and the USD

Earlier in the Day:

Macroeconomic data through the Asian session this morning was on the lighter side, limited to Australia’s 3^rd quarter company gross operating profit figures. Following the 2^nd quarter’s upwardly revised 3.3% decline, company profits fell by a further 0.2% last quarter, falling short of a forecasted 0.2% increase. The weak figure was yet more bad news out of Australia ahead of tomorrow’s RBA interest rate decision.

The Aussie Dollar moved from $0.75927 to $0.75951 upon release of the data, buoyed by the upward revision to the 2^nd quarter numbers, though the gains were short lived, with the Aussie Dollar down 0.38% at $0.7584 at the time of writing. Sentiment towards tomorrow’s RBA statement will be a key consideration for direction and the RBA’s unlikely to be getting hawkish anytime soon, with yield differentials narrowing in favour the U.S Dollar through the session, following the tax reform vote in the early hours of Saturday morning.

Weak corporate profit figures were also a negative for the ASX200, which closed out the day with a 0.07% loss, with bank stocks weighing heavily on the index.

Elsewhere, the Yen was down 0.76% at ¥113.02 against the Dollar, with the Kiwi Dollar also on the slide, down 0.7% at $0.6843.

In spite of the softer Yen, the Nikkei ended the day down 0.49%, while the CSI300 and Hang Seng enjoyed a break from the recent declines, up 0.52% and 0.60% respectively at the time of writing.

Concerns over former national security advisor Michael Flynn’s imminent testimony was a likely concern, with a possible shut down of the U.S government on 8^th December adding also a factor, though tax reform progress certainly trumps the two.

The Day Ahead:

For the EUR, key stats through the European session are limited to Spain’s unemployment numbers that are unlikely to have a material impact on the EUR through the day, with focus firmly on the Dollar.

At the time of writing, the EUR was down 0.45% at $1.1843, with the Dollar in the driving seat for the first time in a while as Trump’s weekend tweets and tax reforms drive direction.

Across La Manche, stats out of the UK are limited to November’s construction PMI, which is forecasted to be a positive for the Pound. The Pound may find some support from the numbers, but will ultimately be on hold, with the British Prime Minister’s scheduled lunch with Juncker this afternoon in the spotlight. Any comments from either Juncker or Theresa May will be key for the Pound through the day.

At the time of writing, the Pound was down 0.34% at $1.3431, with focus firmly on Brussels through the day.

Across the Pond, macroeconomic data out of the U.S is limited to October factory orders, which are forecasted to be Dollar negative.

While we will expect the Dollar to respond to the figures, direction through the day will ultimately be hinged on noise from Capitol Hill.

There’s certainly plenty for the markets to consider, with the early Saturday vote in favour of the tax reform bill a boost for the Dollar going into the European session. While we will expect the tax reform bill’s passage to remain the key driver, Special Counsel Mueller’s investigations into alleged collusion between Trump’s election campaign and the Russians remains a factor to consider. Michael Flynn’s readiness to testify will certainly make things interesting as the investigations get ever close to the U.S president himself.

The other factor that the markets will need to consider is a possible government shut down on 8^th December, should the administration fail to obtain additional funding this week.

At the time of writing, the Dollar Spot Index was up 0.49% at 93.34, with Capitol Hill to provide direction for the day ahead.