Sterling traded relatively flat yesterday despite the annual CPI reading falling to 1.5% annualised – the lowest level since 2016 – after the energy price cap dragged on price growth. The data did little for the pound as the Bank of England’s policy decisions continue to be hamstrung by the outcome of Brexit. For now, the economic data is doing little for sterling as it continues to trade in limbo. Without much important political news and with the general election just under a month away, sterling will likely continue to trade in flux with moves driven by broad USD moves. At 09:30 GMT, October’s retail sales data is released with an increase in the headline figure from 3.1% to 3.7% YoY expected.


EURUSD traded within a 0.23% range yesterday as volatility continued to die down in G10 FX markets. This morning, however, the euro looks to be set for a more interesting day. It has started this morning’s sessions on the offensive following a stronger than expected preliminary GDP reading out of Germany. The Eurozone’s largest economy was widely expected to have entered a technical recession in Q3, but stronger consumption and government expenditure offset a sharp downturn in the export-orientated manufacturing sector. The 0.1% QoQ reading hasn’t prompted a substantial bout of euro strength, however. This is due to growth levels still remaining weak in the Eurozone, and specifically Germany, under a cloud of trade uncertainty and slowing global growth. Along with this, the reading suggests that German officials won’t begin to loosen their purse strings in the coming fiscal year, which is a substantial blow to economic growth across the bloc. German officials previously stated that the balanced budget rule may be revised if Germany’s economy showed a significant downturn. By avoiding a technical recession, albeit by the slimmest of margins, the prospect of more fiscal stimulus in the Eurozone has capped the euro rally this morning. The news may come as bad news for the European Central Bank. Both the incumbent ECB president Christine Lagarde and her predecessor Mario Draghi have hit out at austerity measures across the Eurozone amid deteriorating economic data, with Lagarde recently stating that German and Dutch governments need to use their budget surpluses for investment. While a minor beat in growth eases fears of an entrenched economic slowdown in the Eurozone, by practically ruling out increased fiscal stimulus in Germany, today’s data release might as well have revised down the longer-term trajectory of growth in the economic bloc. Currency markets are fickle, which is why the euro is up this morning, however, this may not last if Germany’s data doesn’t begin to show a broad-based improvement. The preliminary Q3 GDP reading for the whole of the Eurozone is released at 10:00 GMT today. A beat in expectations of that reading is only logical following Germany’s data this morning.


The US dollar made significant progress against its Australian equivalent overnight, as Aussie labour market data fell well short of expectations. Testimony in Washington was in focus yesterday with Fed Chair Jerome Powell testifying to the Senate’s joint economic committee, while televised hearings related to House impeachment proceedings on President Trump began. The latter captured far more attention, with acting US ambassador to Ukraine William Taylor and senior state department official George Kent testifying. Powell for his part mostly seemed to confirm the market’s expectation that the Fed would not lower interest rates further in December, repeating his assertion that the current policy stance would remain appropriate as long as it was justified by incoming data. US inflation data exceeded expectations, with the headline CPI rising 1.8% year on year. Today’s calendar is packed with data and Fed speakers, with Quarles speaking at 10:30 GMT, Producer Prices and Unemployment Claims at 13:30, Clarida and Evans speaking at 14:10. and more Powell testimony at 15:00. New York Fed President John Williams will then speak at 17:00, as will his equivalent at the St. Louis Fed, James Bullard, at 17:20.


The loonie continued to trade on the back foot against the greenback despite a rally in WTI. Stronger than expected US CPI data prompted the rise in USDCAD yesterday afternoon, and with little schedule in the data calendar for the loonie this week, the pair’s upward trend is likely to continue. Oil markets may provide a source of stimulus for the loonie, however, with the US EIA inventory report due out at 16:00 GMT – a day later than usual due to Veterans Day in the US. WTI has reversed losses sustained earlier on in the week as OPEC announced that it sees the potential for a cut in supply from non-OPEC producers next year. Meanwhile, the API inventory release, considered a precursor to the more impactful EIA release scheduled for today, showed a decrease in US inventories which spurred crude prices higher.



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