Friday AM: GBP Eyes Carney Speech | USD: Retail Sales Data

Exchange rate markets

Image © Daniel Sky Photo, Adobe Stock

Unless we receive any developments pertaining to global trade from the White House today we see little reason why the US Dollar will suffer a weekly decline.

The Australian, New Zealand and Canadian Dollars are meanwhile on track to record a gain amidst an improved global investor sentiment stemming from signs US-China trade tensions might be easing.

The Euro and Pound Sterling meanwhile face little on the calendar but traders will have the previous day's central bank policy announcements to digest.



At 11:00 B.S.T. Mark Carney will be delivering the Whitaker Lecture to an audience in Dublin.

If Carney chooses to expand his views on Thursday's Bank of England policy decision; and more importantly his views on the outlook, we might see Sterling move.

The Bank of England delivered a decision that we believe to have been on balance a positive one for Sterling: The economy has, if anything, outperformed the Bank's expectations since we last heard from them in August.

The Bank is however unlikely to move on interest rates again until 2019, at which stage the details of Brexit will become more clear.

We imagine any headlines from Carney's Dublin appearance will centre on any views he might have of Brexit.

There is no data on the calendar and should there be no negative Brexit headlines Sterling is looking well positioned to end the week on a high and maintain the strong performance of the past month.

GBP doing well

Above: Sterling's performance over the past month




Retail sales numbers are out at 13:30 B.S.T. with markets expecting the headline reading to show month-on-month growth of 0.4% in August.

And deviation could well move the USD, particularly in light of the reaction we saw in regards to Thursday's inflation release.

The US Dollar has come under fire of late with the currency actually being close to securing the title of the week's worst performer:

US dollar performance

Above: The Dollar's performance over the past week

Note that the Yen is actually doing worse. This tells us something: safe-haven currencies are struggling and this is likely due to the improved sentiment towards global trade conditions owing to news the US and China are both willing to get back to the negotiating table to resolve their standoff.

But, and potentially more importantly, the prospect for global and US growth has improved on signs that the Federal Reserve might have to slow down on the rate of interest rate hikes they intend to deliver in the future.

This is because US inflation has slowed faster than previously expected.

On Thursday, U.S. inflation was reported to have risen by 0.2% during August, unchanged from back in July, when markets had looked for a 0.3% increase. This pushed the annualised rate from 2.9% back to 2.7% when markets were looking for a decline to only 2.8%.

The prospect of peaking inflation makes the need for aggressive Fed hikes unnecessary. And, it is the rising of interest rates in the US that are seen as a potential threat to US and global growth.



There is nothing of consequence in the calendar for the Euro today.

The Euro moved notably higher against the Dollar on Thursday after the European Central Bank (ECB) expressed satisfaction with the trajectory of Eurozone inflation, leading traders to increase bets that a September 2019 interest rate rise is likely.

The bullish assessment on inflation dynamics trumped a set of downgrades to economic growth forecasts and confirm to markets the ECB is unlikely to be swayed in its desire to see rates move higher.

The ECB left all of its interest rates unchanged for September and confirmed earlier guidance relating to the shuttering of its quantitative easing programme.

With the Dollar under pressure the prospect of further Euro strength is possible.

"EUR/USD is bid near term having recently stabilised above the 1.1510/08 supports. This leaves the market well placed to tackle resistance offered by the 1.1745/50 area and the 1.1790 recent high. A close above here is needed to trigger a move to the 1.1853 mid-June high and the 1.1910 55 week Moving Average. We suspect that the recent low at 1.1301 was a significant turn for the market," says Karen Jones, a technical strategist with Commerzbank.



The Canadian Dollar has had a decent week and the strong performance will continue unless there are any negative developments regarding NAFTA.

"PM Trudeau tried to downplay the September 30 deadline for negotiations in remarks to reporters yesterday. Key uptrend support for USD/CAD is back in focus at 1.2944, with 1.3111 serving as resistance," says Adam Cole, an analyst with RBC Capital Markets.



The Australian Dollar's near-term recovery remains alive thanks to Dollar weakness and improved investor sentiment stemming from signs US-China trade tensions might be easing somewhat.

Concerning the outlook, we await any further developments regarding trade.

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