Sterling stabilises after U.K. parliament vote caused a sharp sell off. Markets look towards USA GDP figures and FOMC rate decision, for U.S. dollar direction
After an approximate 1% sell off, shortly after the U.K. parliament passed a vote making a no deal Brexit more likely, GBP/USD stabilised in the overnight Sydney and Tokyo FX trading sessions. Both the U.K. mainstream media and the political circus surrounding Westminster, began to digest the news and quickly reached the conclusion that Mrs May, the U.K. prime minister, has approximately thirteen days to renegotiate a deal with the E.U. that requires what’s referred to as the “backstop”, removed from the legal agreement.
Despite the E.U. leaders immediately rejecting any compromise, the echo chamber of U.K. political news, remains convinced that the U.K. has a chance to alter the framework of the withdrawal agreement, to satisfy her party’s warring factions. GBP/USD was trading up 0.16% by 7:30am UK time, with EUR/GBP trading down 0.09%.
The Australian dollar was the most significant riser of currencies, in the Sydney and Tokyo trading sessions. Australia’s official inflation metric came in ahead of the forecast at 1.8% annually, encouraging FX markets to believe a rate rise is more likely, when the central bank the RBA next meets. At 7:30am AUD/USD traded up 0.58% at 0.791, marking a significant recovery since the Aussie dollar suffered a sell off, from late December to early January.
The euro was trading flat and was stable, versus the majority of its peers, after France’s authorities published data revealing that the French economy’s GDP had grown by 0.3% in the last quarter of 2018. The yearly growth figure came in at 0.9%, a fall from the 1.3% previously recorded. Other euro related news involved Germany’s import prices, which have fallen by -1.3% month on month in December. Cheaper imports could provide a direct boost to German manufacturers who, according to recent data, are mired in a slump.
Consumer confidence in Germany has risen marginally, according to the latest GfK reading, rising to 10.8. Germany will reveal its latest CPI (consumer price inflation) data in the afternoon, the forecast is for a fall in annual inflation to 1.6%, as a consequence of a projected monthly negative reading for January of -0.8%. Such potential figures might not be priced into the value of the euro versus its main peers yet, therefore euro traders should remain vigilant to this data release. At 7:40am U.K. time, EUR/USD traded flat at 1.143. The euro was trading down significantly,versus both AUD and NZD.
With the Brexit drama temporarily parked, FX traders will now turn their focus towards the USA and it’s a busy day for USA economic calendar news and events, with the FOMC two day symposium scheduled to end, resulting in an rate policy announcement. A press conference from the Fed Chair Jerome Powell will also take place, whilst traders will listen intently for any clues that the Fed/FOMC have altered their monetary policy.
The forecast is for the rate to remain unchanged at 2.5%, with the expectation that the committee will remain committed to their hawkish policy; to raise rates up to three times in 2019. With the caveat that they reserve the right to change policy, dependent on prevailing economic conditions; domestically and globally. Traders would be advised to remain vigilant when the rate setting announcement is revealed at 7:00pm U.K. time and the press conference begins at 7:30pm.
The FOMC decision and the press conference comes on the day that the latest USA GDP figures are released, the expectation is that the annualised figure will fall to 2.6% for Q4 2018, from the 3.4% recorded in the previous quarter. As to whether markets have priced in this revision, in relation to the U.S. dollar’s value, is difficult to gauge. Other U.S. news concerns the two day discussion between China and the USA that begins today, which represents another attempt to dampen down the trade wars and increased tariff threats. At 8:00am USD/JPY was trading close to flat at 109.3, with USD/CHF trading at 0.996 up 0.20%.
Gold (XAU/USD) continued its impressive upward momentum during Tuesday’s early trading, as the precious metal reached an eight month high, breaching R1 and registering a high of over $1315 per ounce. WTI oil continued to trade close to a weekly high, after experiencing a rise during Tuesday’s trading sessions. The sharp rise occurred as a consequence of the USA administration placing embargoes on Venezuelan oil exports, whilst redirecting funds to the office of the opposition leader, who’s challenging the validity of the current president’s position. WTI traded at $53.23 per barrel, down 0.25% at 8:00am.
« Why FX traders need to monitor the FOMC rate decision and Jerome Powell’s subsequent press conference statement The latest Eurozone GDP growth figures will be carefully monitored, for any further signs that growth is weakening. »