Market Info

Even more poor UK economic news

07/11/2017 | OzForex

Tuesday 7 November

British Pound (GBP)

The next major set-piece event for the UK Government is the annual Budget to be delivered by Chancellor Philip Hammond on November 22nd. Ahead of this, the National Audit Office has released a report which says, ““There are significant risks to the public finances and any unexpected developments, potentially including consequences of leaving the EU could exacerbate them. In these circumstances, the Treasury needs to constantly monitor these risks and be ready to react quickly and flexibly. Public and private borrowing are high, kept affordable by record low interest rates, and quantitative easing continues 10 years after the crisis it responded to.” Arguably there’s nothing new about these concerns but the fact they are being aired so publicly highlights the Chancellor’s limited room for manoeuvre at a time when there is huge political pressure on him to deliver a significant boost to the UK economy. The GBP hasn’t moved much at all through the overnight session and opens in London at USD1.3160; within a few pips of its New York close. For the moment it has shrugged off a very disappointing report from the British Retail Consortium which reported sales down -1.0 y/y which it said, “was driven by the worst performance of non-food sales since our record began in January 2011." The next set of economic data isn’t until industrial production on Thursday so the very near-term outlook for GBP is for it to be stuck between technical support at 1.3050 and resistance around 1.3180.

US Dollar (USD)

USD/GBP expected range: 1.3050 – 1.3180

The US Dollar index against a basket of currencies held firm though Monday’s Asian and European sessions but then lost a quarter of a percentage point through the North American day to a low of 94.47 from 94.78. We warned here yesterday that “as President Trump continues his Asia trip with visits to China and South Korea later in the week, it will be important to keep an eye on what the Republican Party are doing back home. Any signs of squabbling and delay on tax cuts will keep a lid on further USD strength”. With House Ways and Means Chairman Kevin Brady telling his panel that it faces a “monumental challenge” this week, investors duly reacting by marking down the USD even as stock markets continue to rally. Overnight it has steadied somewhat and opens in London around 94.50. Janet Yellen’s supposedly favourite economic series – the Job Openings and Labour Turnover Survey (JOLTS) – is released at 9am New York time today but it still hasn’t gained a lot of traction within the foreign exchange market. A December rate hike appears very much a done deal and it would take either a huge external shock or a sudden sharp decline in the stock market to make investors rethink. Once again, then, for the US Dollar today it’s still all about Trump and taxes.

European Euro (EUR)

GBP/EUR expected range: 1.1300 – 1.1380

Your author should have programmed a button on his computer to write with a single keystroke, “once again the EUR/USD exchange rate opens on a 1.16 big figure”. It would certainly save some typing! The fact is that from 6pm yesterday evening in London, the pair has been stuck between 1.1603 and 1.1614. It hasn’t been much livelier on the GBP/EUR cross which over the same time frame has been trapped between 1.1339 and 1.1350. In an interview with Reuters, the head of the EU’s Eurogroup, Jeroen Dijsselbloem, said, “A large number of European Union finance ministers believe some form of euro zone budget, possibly including specific taxes, would be a good way to stabilize the single currency area”. The problem, of course, is that Germany isn’t one of them. There’s plenty of discussion still to do before an EU leaders summit in mid-December, but Mr Dijsselbloem’s summary that, “Quite a large number of ministers feel that to complement our toolkit with a fiscal capacity as a stabilization tool would be useful,” is likely to fall on deaf ears. ECB speakers today include Draghi, Lautenschlaeger, Nuoy, and Angeloni. They are unlikely to express anything other than cautious optimism on economic prospects in the Eurozone and they’ll surely be pleased if EUR/USD stays as quiet as it has been over the last week or so.

Australian Dollar (AUD)

GBP/AUD expected range: 1.7100 – 1.7210

Over the last few days we’ve highlighted a couple of horses in the Melbourne Cup; “The Race that Stops a Nation.” Looking at the runners and riders, we said that ‘Boom Time’ seemed an unlikely way to describe the Australian economy and wondered if “Rekindling” would be used to describe rate hike hopes. In the event, Rekindling, starting from stall four and ridden by Corey Brown, burst down the home straight at Flemington Racecourse to be only the second Irish horse in 24 years to win the Melbourne Cup. For the Reserve Bank of Australia, the winning horse appears to have had little influence on interest rate expectations which were most certainly not rekindled. Its Statement today noted, “forecasts for growth in the Australian economy are largely unchanged… The higher exchange rate is expected to contribute to continued subdued price pressures in the economy. It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.” Markets have taken the hint and marked down the AUD exchange rate. AUD/USD is 15 pips lower at 0.7677 with GBP/AUD at 1.7126.