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The U.S. Dollar and Pound Sterling are the two currencies vying for the top of the G10 leader-board ahead of the weekend.
The Dollar was aided by the mid-week U.S. Federal Reserve guidance while a lack of headlines concerning Brexit and an assumption that negotiators ultimately remain on track to secure a deal by year-end appears to be aiding Sterling’s resilience.
Global markets are meanwhile looking resilient; ensuring investor sentiment is skewed against safe-haven currencies like the Yen and Franc, and is marginally supportive of the likes of the New Zealand Dollar and South African Rand.
GBP
Monthly U.K. GDP data are out at 09.30 B.S.T. and markets will be looking for evidence of further strength in the U.K. economy (despite Brexit!).
Analysts are forecasting a reading of 0.4% growth quarter-on-quarter for the second quarter 2018.
This should take annualised growth for the second quarter to 1.3%.
With recent data coming ahead of expectation (employment, wages, retail sales) markets are quietly optimistic the U.K.’s economic growth trajectory is consistent with the need for further interest rates at the Bank of England.
This provides the setup for a strong recovery in Sterling should a Brexit Withdrawal Agreement be struck before year-end.
Therefore while the GDP numbers might benefit or hurt Sterling, the impact is likely to be relatively short-lived: all eyes remain fixated on brexit.
EUR
Watch inflation data out of the Eurozone at 10:00 B.S.T. today.
The preliminary data for September is forecast to show a reading of 2.1% year-on-year, while core CPI inflation is forecast to read at 1.1%.
The move above 2.1% would suggest Eurozone inflation is heading in a direction consistent with the need for the European Central Bank to raise interest rates in 2019.
It is this expectation that has kept a floor under the Euro of late and that drives forecasts for a stronger Euro in 2019.
Should the data disappoint, we could well see the Euro reverse.
The Euro has been under pressure for much of the past 24 hours amidst growing anxiety regarding the state of the new Italian coalition government’s budget.
There were fears that a breach of the E.U. rules would set Rome up for confrontation with Brussels which would ultimately raise political uncertainty in the bloc and hurt the Euro.
Italy’s government ultimately agreed late Thursday to set the 2019 budget deficit target at 2.4% of GDP and we are told that relief over this outcome could well see the Euro claw back losses ahead of the weekend.
The final target was larger than that being promoted by Italy’s technocratic finance minister Giovanni Tria who was aiming for a 2.0% target. There were concerns that the at times tense negotiations would see Tria resign, which in itself would have been a major red light for markets.
Markets have expressed relief that confrontation has been avoided and the Italian-German 10-year government bond yield spread remains contained within its recent ranges.
“This suggests investor concern over Italian fiscal profligacy is muted. Consequently, we expect EUR to recover some of its recent losses,” says Elias Haddad, Senior Currency Strategist with Commonwealth Bank of Australia.
CAD
GDP numbers are due out of Canada at 13:30 B.S.T. with markets looking for a month-on-month growth of 0.1% to be reported. Annualised growth is forecast to stand at 2.2%.
Markets will be looking for any signs that ongoing NAFTA uncertainty is impacting Canadian economic growth.
If the GDP data beats expectations we could well see the Canadian Dollar embrace a recovery rally ahead of the weekend allowing it to recover at least part of the losses suffered over recent weeks.
RBC Capital Markets are however advising their forecasts are slightly below consensus and they see 0.0% for July GDP with the weakness largely down to transitory disruptions at the Syncrude oil sands operation due to a power outage.
“Oil sands activity is expected to recover in August, so though Q3 activity may take a hit, we see a rebound in Q4 back to 2.6%,” says analyst Adam Cole with RBC Capital.
Regarding NAFTA, the U.S. is expected to publish the text of its bilateral deal with Mexico as it tries to push ahead without Canada.
This story could well be one to watch ahead of the weekend.
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