Morning Report: 27 October 2015

27th October 2015 By: Ranko Berich

GBP Sterling was on the back foot for the most part yesterday, ahead of today’s UK GDP data release. It fell against most of the currencies of the G10, with the exception of CAD and NOK. Considering that previous quarter’s initial estimates were not changed in the following revisions, today’s reading has the potential to be a market mover. The reality is that the UK’s economy has slowed down somewhat during the last quarter, however the labour market has been improving. The official reading is released at 0930 London time.

EUR After touching bottom last Thursday, the single currency has recovered some of its losses, following weaker US housing data yesterday and some profit taking. Nonetheless, the recovery could be short-lived as markets will be looking to inflation data from Germany and Spain. While no data is scheduled in the Eurozone, we expect the EUR to trade in recent ranges ahead of the Fed decision, scheduled for tomorrow.

USD The US dollar has been flat ahead of tomorrow’s Fed meeting. The markets are very cautious as tomorrow’s Fed decision will likely effect some renewed price action and volatility in dollar pairs. While the expectations for a rate hike have dwindled down from 30% a week ago, to 6% as of yesterday for a hike, the market will be very focused on the Chair Yellen’s statement. With poor October Non-Farm payrolls, weak retail sales but better than expected CPI data out of the US recently, the Fed will need to tread carefully in their statement. Apart from the focus on the Fed tomorrow, today’s docket in the United States includes Durable Goods orders which should be of interest.

CAD The loonie retreated overnight against USD, as markets continued to sell off the CAD in favour of USD after inflation was confirmed to have slipped into negative territory in Canada. After the elections, Canada’s inflation drop to negative was a bucket of cold water that has weakened CAD severely, having lost more than 2.5% in the last 10 days against the USD. With no data scheduled in Canada today, today’s speech Governing Council Member Timothy Lane at the CFA society in Halifax, will be of interest to the market.

UK News

  • FT. K banks approve fewer mortgages in September as rate rise looms: Banks approved fewer mortgages in the UK last month as the prospect of an imminent rate rise receded, but the Bank of England governor is still urging over-indebted households and mortgage borrowers to prepare for an increase.
  • FT. Osborne to rethink tax credits after Lords defeat: George Osborne said he would rethink his cuts to tax credits after the House of Lords on Monday handed the chancellor a stinging defeat in a vote that has led Downing Street to urgently review the role of the unelected chamber.
  • Reuters. UK factory orders show biggest quarterly fall in three years – CBI: British factory orders fell in the three months to October to showed their biggest quarterly decline since 2012 as slower demand at home compounded the drag from a weaker global economy and the stronger pound, an industry survey showed on Monday.