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BoE Reports, Tax Reforms and FED Talk to Drive the GBP and USD

Bob Mason
BoE Reports, Tax Reforms and FED Talk to Drive the GBP and USD

Earlier in the Day:

It was another day of red for Chinese equities, with the CSI300 falling by as much as 0.98%, before recovering some of the losses, off the back of Monday’s 1.32% decline, adding pressure on stocks within the region and beyond over concerns that Chinese regulators will continue to clamp down on borrowing and wipe the year’s gains.

It’s not the first time that market risk sentiment has been influenced by Chinese regulators and their effect on the markets and it’s unlikely to be the last. While there have been some sizeable declines in recent days, the CSI300 is still up 21.5% year-to-date, with only the Hang Seng outperforming. So, it’s perhaps a little too early for a market panic and this week’s manufacturing PMI numbers out of China could be the tonic to reverse the declines later this week.

The negative sentiment towards Chinese stocks also weighed on the Hang Seng, which was down 0.61% at the time of writing, with oil stocks also joining the heavy losers on the day, as crude oil retreats ahead of Thursday’s OPEC meeting.

With the majors down, there was little hope for the ASX200, which coughed up gains from earlier in the day to end in the red by the close.

There were no material stats released through the Asian session this morning and the lack of direction has left the markets with little else to focus on through the start of the week.

Dollar weakness prevailed through the Asian session this morning, with the Aussie Dollar up 0.13% at $0.7612 and the Kiwi Dollar finding its feet, up 0.33% to $0.6935. For the Yen it was a relatively flat day, down just 0.09% to ¥111.19. The Yen had rallied earlier in the session on news hitting the wires of the Japanese intercepting radio signals of an imminent North Korean missile launch. The news saw the Yen hit an intraday high ¥110.93 against the Dollar before going into reverse as satellite imagery failed to support the radio signals picked up by the Japanese.

It would be quite a move by the North Koreans to test another ballistic missile, particularly with the Chinese government looking to bring an end to the tension. The moves in the Yen in response to the new is reflective of just how sensitive the markets are to a possible escalation of tension.

The Day Ahead:

It’s another relatively quiet day on the data front for the Eurozone, with stats limited to this afternoon’s GfK consumer climate figures for December. It’s not clear whether the survey will have covered the period following the break down in coalition talks to provide the markets with some idea of whether there is likely to be any economic fallout from Merkel’s troubles.

For now, the EUR has managed to strand its ground on hopes of a grand coalition, but we can expect some uncertainty to creep into the EUR as the year-end draws near, the markets certainly looking for Germany to resolve its political issues sooner rather than later.

At the time of the report, the EUR was up 0.05% at $1.1904 with direction through the day not only hinged on noise from the SDPs, but also Capitol Hill.

For the UK, the BoE’s financial stability report is scheduled for release this morning, which could weigh on the Pound should the report raise material concerns over financial stability. Thrown into the mix will be the BoE’s release of the bank stress test results, with Carney discussing the results and presenting recommendations following the release.

Again, any concerns over the banking sector would be a negative for the Pound, while the pendulum could swing the other way if the stress tests delivers no surprises this morning.

At the time of writing, the Pound was down 0.10% at $1.3331, with noise from parliament and the EU always a factor to consider on top of today’s BoE report releases.

Across the Pond, macroeconomic data out of the U.S includes October’s goods trade data and November consumer confidence figures that will provide some direction for the Dollar, though by the close it will come down to progress on tax reforms, the in coming FED Chair Powell’s session in the House and speeches delivered by voting FOMC members Dudley and Harker, both of whom have been on the hawkish side of late.

For the outlook on rates, the interest is now on the projected rate path for next year, rather than a rate hike in December, which has been priced in. Any hawkish commentary on rates for next year will be Dollar positive, though the markets will also need to be convinced that tax reform bill discussions are making progress.

At the time of writing the Dollar Spot Index was down 0.03% at 92.874, with direction through the day likely to be hinged on the tax reform bill and FOMC member speak.

This article was originally posted on FX Empire