mask Euro Inflation Meets Expectations, Pound Gains on Brexit Consideration, USD on Slide

18/ 01/ 2018

Euro Inflation Meets Expectations, Pound Gains on Brexit Consideration, USD on Slide

Daily Update - 18th January 2017

Yesterday’s Focus

  • EUR Consumer Price Index
  • US Industrial Production, Capacity Utilization, NAHB Housing Market Index, FED’s Beige Book, Member Mester Speech
  • CAD Monetary Policy Report, Rate Statement, Interest Rate Decision, Press Conference

Yesterday’s Explained

On Wednesday, BOC raised the policy rate by 25 bps to 1.25% yesterday, as "recent data have been strong, inflation is close to target, and the economy is operating roughly at capacity". The move had been widely anticipated. As such, we observed the instant "sell the news" move in USDCAD after the announcement. Canadian dollar's retreat was pared later in the day, though, as the market has priced in another rate hike by May. Policymakers remained cautious over future rate hikes and cited the uncertainty in the NAFTA renegotiations as a risk. Yet, the market appeared to have shrugged off these comments.

The central bank also released its latest Monetary Policy Report (MPR), providing updated economic projections. The staff projected GDP growth to average at 3% in 2017, followed by 2.2% in 2018 (up from 2.1% in October's estimate). Growth should ease further to 1.6% in 2019 (up from October's 1.5% forecast). A major risk facing Canadian economy is the uncertainty around NAFTA negotiations which is "clouding the economic outlook". As such, the latest economic projections have incorporated "additional negative judgment on business investment and trade" of NAFTA uncertainty.

The latest Beige Book prepared by the Atlanta Fed continued to depict an upbeat economic environment. All Districts surveyed reported "modest to moderate gains" in economic activity while Dallas reported a "robust" increase. The outlook for this year remains optimistic. On the employment situation, most Districts noted a tight labour market. Some suggested that the situation is constraining growth. Despite this, wages in most Districts only grew at a "modest" pace.

Today’s Focus

  • EUR German Buba Pres Weidmann Speech
  • US Jobless Claims, Building Permits

Today’s Market

There are no material stats scheduled for release out of the Eurozone today, which will leave the EUR in the hands of market risk appetite through the European session and any updates on coalition talks in Germany, with questions continuing to be raised over Merkel’s future as Chancellor.

It’s also a quiet day for the Pound, with no material stats scheduled for release, leaving direction in the hands of the EU (Withdrawal) Bill that goes to the House of Lords following last night’s House of Commons vote in favour of the Bill.

Concerns over the House of Lords holding up the bill may weigh on the Pound, with any chatter on Brexit likely to provide further direction through the day.

Across the Pond, economic data out of the U.S includes December housing sector data, January’s Philly FED Manufacturing PMI numbers and the weekly jobless claims data. Forecasts are for the numbers to be Dollar negative, with the key driver this afternoon being the PMI numbers. A better than expected figure will provide some much-needed support, with the Dollar on the back foot this morning, the Dollar Spot Index down 0.23% to 90.77.