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Friday AM: Market Gloom Prevails | GBP: GDP, Borrowing Data | USD: PCE Prices | EUR: Strong Near-Term | CAD: GDP and Retail Sales

Exchange rates

Image © Andrey Popov, Adobe Stock

Market sentiment is soft ahead of the weekend with global stocks extending a steep sell-off with the threat of a U.S. government shutdown and further hikes in U.S. borrowing costs being cited.

It is notable that the Japanese Yen is the G10's best performing currency over the course of the past month of trade, confirming it's safe-haven status is intact. We would expect the currency to continue outperforming as long as stock markets are shedding weight.

The U.S. Dollar has given up all of yesterday’s gains, particularly against the JPY.

A shutdown of the US government has not yet been avoided with Bloomberg reporting that President Trump hardened his demand for money to build a wall between the US and Mexico in exchange for agreeing to keep the US government open.

A bill needs to be passed by both houses of Congress and signed by President Trump by the end of today (US time) to prevent a shutdown of the US government.

The Australian Dollar is at the bottom of the pack owing to its positive correlation to global investor sentiment, these are not conditions that are helpful for AUD and the currency could continue to lag, particularly with domestic concerns over the country's housing market continuing to simmer,


GBP

EUR

Economic data is on tap at 09:30 with the ONS releasing GDP, public finance and current account statistics.

The GDP data are a revision of the Q3 statistics, and markets are looking for annualised GDP growth of 1.5% to be confirmed for the third quarter, while quarter-on-quarter growth is forecast at 0.6%.

We will also be watching the quarterly business investment component which is forecast to read at -1.2% quarter-on-quarter in the third quarter and -1.9% year-on-year in the third quarter.

The current account is forecast to be in deficit to the tune of -21.7BN GBP.

Public sector net borrowing is forecast to read at £7.05BN in November.

All the above numbers are likely to be academic for Sterling at this stage as the outlook for the economy ultimately relies on the outcome of Brexit negotiations in early 2019.

Therefore we would expect Sterling to hug familiar levels through to the end of 2018.


USD

USD

There are a number of data points out of the U.S. we will be watching.

Core durable goods orders are out at 13:30 GMT, consensus expects a month-on-month reading of 0.3% to be announced.

The final U.S. GDP reading for the third quarter will be released at 13:30, markets expect 3.5% quarter-on-quarter to be confirmed.

Personal consumption expenditure numbers are due, these tend to be closely watched by the Federal Reserve as they offer insights into how prices are affecting the consumer.

PCE prices are released at 13:30 and a reading of 1.9% is forecast by markets.

The Core PCE price index is released at 15:00 and a 0.2% reading is expected on a month-on-month basis. The annualised figure is forecast to read at 1.9%.

"With interest sensitive sectors of the economy softening, we expect US core inflation to remain contained around 2%/yr or lower. We expect the FOMC to increase the Funds rate twice more in 2019 to 2.75‑3.0%. Financial markets are (rightly) focused on the end of the FOMC’s tightening cycle while the ECB has not yet started tightening monetary policy. We predict EUR/USD will lift from 1.1482 to 1.2200 next year," says Joseph Capurso, foreign exchange strategist with Commonwealth Bank of Australia.

EUR

EUR

With no major Eurozone releases on tap today, the Euro should be subject to external drivers and technical considerations.

"EUR/USD is seeing a strong rebound from the November low at 1.1267 and is currently well placed to challenge and break above the 2018 downtrend at 1.1503. Upside risks are growing and a close above here would trigger a recovery to the 1.1623 October high and the 1.1695 200 day ma," says Karen Jones, technical strategist with Commerzbank in London.

CAD

CAD

The Canadian Dollar is the worst-performing G10 currency of the past month, having fallen against all its peers.

Momentum is therefore working against the currency, and we would not be surprised to see further declines.

However, there are some data to watch out for ahead of the weekend.

Retail sales are due out at 13:30 GMT, headline retail sales are forecast to read at 0.4% month-on-month in October. Core monthly sales are forecast to read at 0.2%.

Monthly GDP data are released at the same time and markets are looking for the economy to have grown 0.2% month-on-month in October, recovering from the -0.1% decline seen in September.

The Bank of Canada Business Outlook survey is due at 15:00.

At 16:00 the country's budget balance is to be released.

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