Daily Forex Commentary

12 October 2017 - USD lower after slightly more dovish FOMC minutes

By James Mills

United States Dollar

Ahead of the FOMC minutes release yesterday evening currency markets were understandably flat as investors remained cautious. Cable traded a fairly tight range around the mid-market levels of 1.3180 and 1.3220. As expected policymakers expressed concerns around lagging inflation but markets took the minutes a little move dovish as the same policymakers were worried that low-inflation will not only be transitory. While many still see another rate hike as being appropriate before the end of the year this does mean US inflation numbers will be closely scrutinised in the coming months and casts doubt on the pace of further rate hikes next year. Sterling, therefore, gapped higher following the release and rose to an interbank high of 1.3262 in overnight trading.

Attention now turns to today’s US Jobless claims and Producer Price Index released this afternoon. While the US Labor market has shown significant strength the knock-on effects of recent US hurricanes may adversely affect US jobs, as attributed to the drop in US Non-Farm Payrolls last week. If these adverse effects continue for an extended period, this may further dent the pace of future US interest rate hikes.

We expect a range today in the GBP/USD1.3175 and 1.3325

Euro

GBP/EUR lost some of its early week gains, falling from a mid-market high of 1.1185 to 1.1126, as the euro found relief following news that Catalan leader, Carles Puigdemont, would not be declaring independence and instead said he would allow negotiations. Today’s data docket is relatively clear, apart from Eurozone Industrial Production, so markets will likely be focused on Brexit Secretary David Davis and EU’s chief negotiator Michel Barnier, who are expected to sum up the state of negotiations on the UK’s departure from the union, plus ECB President Mario Draghi’s speech at the Peterson Institute for International Economics, later this afternoon.

EUR/USD trades higher today as the slightly more dovish FOMC minutes and abating Spanish/Catalan crisis helped the pair move about the 1.1850 interbank handle. Increasing speculation that the ECB will announce plans to scale back its QE programme has further supported the Euro and this news seems to be gaining momentum, especially with ECB Chief Economist Peter Praet commentating that the ECB bond buying programme could continue for longer but at a slower pace. This also gives the ECB scope to increase or decrease the stimulus if economic conditions change and would be less of a shock to markets than simply stopping and restarting the programme.

Today markets will be looking towards Eurozone Industrial Production, ECB President Mario Draghi speech plus US PPI and Unemployment claims for direction.

We expect a range today in the GBP/EUR rate of 1.11 and 1.1220

Aussie and Kiwi Dollars

Despite a positive reading from Westpac’s Consumer Sentiment index, the Australian Dollar met resistance through early trading yesterday. According to Westpac, the improvement was largely driven by optimism towards the economy in the year ahead and consistent coverage of the continuing improvement in the global economy, in particular, the US. Overnight AUD has regained some ground off the back of improved Home loans and Inflation expectations. Attention now turns to the knock-on effects of US unemployment claims plus tomorrows RBA Financial Stability Review.

The New Zealand dollar showed little to investors through trade on Wednesday tracking sideways as analysts await the final results of the September election. With little domestic data on hand to drive direction the NZD has suffered steep losses amidst ongoing political uncertainty and a declining Trade Weighted Index. And with little of note on hand to guide investor decision making the Kiwi will again be driven by further political developments.

We expect a range today in the GBP/AUD rate of 1.6850 to 1.70

We expect a range today in the GBP/NZD rate of 1.85 to 1.87

Data Releases

AUD: RBA Financial Stability Review

EUR: Eurozone Industrial Production, ECB President Draghi Speech

GBP: BOE Credit Conditions Survey

NZD: No Data

USD: PPI (Sep), Unemployment Claims

 

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