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Pound Drops on Hard Brexit Fears, US Dollar May Rise on Fed Bets

Pound Drops on Hard Brexit Fears, US Dollar May Rise on Fed Bets

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Pound drops on “hard Brexit” fears before key UK PM May speech
  • ISM and ADP data may feed Fed rate hike bets, boosting US Dollar
  • NZ Dollar falls as milk price drop stokes RBNZ rate cut speculation

The British Pound traded lower as worries about a “hard Brexit” continued to swell ahead of a much-anticipated speech from Prime Minister Theresa May at the conclusion of the Conservative Party Conference in Birmingham. The UK unit has faced heavy selling pressure since the Premier hinted at an early-2017 timeline for starting the EU exit process and suggested that immigration controls will take precedence over securing access the single market over the weekend.

The final round of UK PMI figures will probably pass with little fanfare as investors opt against committing to a directional bias before Ms May’s remarks. A policy speech from BOE Deputy Governor Ben Broadbent may generate a bit more attention if he suggests that the central bank is gearing up to boost stimulus further in anticipation of a rocky EU negotiation. Still, lasting follow-through seems unlikely until after the Prime Minister has laid out her vision.

Later in the day, US economic data will be in focus as ISM Non-manufacturing Composite gauge and the ADP Employment report cross the wires. A pickup in service-sector activity growth (53.0 vs. 51.4 prior) and a mild slowdown in job creation (165k vs. 177k prior) are expected in September. Recent stabilization in US news-flow relative to consensus forecasts may foreshadow outcomes broadly in line with recent trends, which FOMC officials have signaled are supportive for a rate hike before the end of the year. Confirming as much may boost the US Dollar.

The New Zealand Dollar underperformed in overnight trade after dairy auction produced the lowest prices in two months. The drop was seemingly interpreted as encouraging a more dovish RBNZ posture as reduced revenues on sales of the island nation’s top export commodity hurt overall economic growth. Indeed, the currency paced a decline in front-end bond yields. The priced-in probability of a 25bps cut at next month’s policy meeting now stands at 68 percent.

Asia Session

GMTCCYEVENTACTEXPPREV
22:30AUDAiG Perf of Services Index (SEP)48.9-45
23:01GBPBRC Shop Price Index (YoY) (SEP)-1.8%--2.0%
00:00NZDANZ Commodity Price (SEP)5.1%-3.2%
00:00USDChicago FRB Evans Addresses CFA Society Event ---
00:30JPYNikkei Japan PMI Services (SEP)48.2-49.6
00:30JPYNikkei Japan PMI Composite (SEP)48.9-49.8
00:30AUDRetail Sales (MoM) (AUG)0.4%0.2%0.0%
05:30NZDRBNZ’s McDermott Comments on Panel---

European Session

GMTCCYEVENTEXPPREVIMPACT
07:00EURECB’s Nowotny Speaks in Vienna--Low
07:45EURMarkit/ADACI Italy Services PMI (SEP)52.052.3Low
07:45EURMarkit/ADACI Italy Composite PMI (SEP)51.551.9Low
07:50EURMarkit France Services PMI (SEP F) 54.154.1Low
07:50EURMarkit France Composite PMI (SEP F) 53.353.3Low
07:55EURMarkit Germany Services PMI (SEP F) 50.650.6Medium
07:55EURMarkit/BME Germany Composite PMI (SEP F) 52.752.7Medium
08:00EURMarkit Eurozone Services PMI (SEP F) 52.152.1Medium
08:00EURMarkit Eurozone Composite PMI (SEP F) 52.652.6Medium
08:30GBPOfficial Reserves Changes (SEP)--$463mLow
08:30GBPMarkit/CIPS UK Services PMI (SEP)52.252.9Medium
08:30GBPMarkit/CIPS UK Composite PMI (SEP)52.353.6Medium
08:30GBPBOE’s Broadbent Speaks in London --Medium
09:00EURRetail Sales (MoM) (AUG)-0.3%1.1%Low
09:00EURRetail Sales (YoY) (AUG)1.5%2.9%Low
10:30GBPUK PM May Speaks at Conservative Party Conf.--High

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EUR/USD1.09921.10931.11481.11941.12491.12951.1396
GBP/USD1.24881.26291.26781.27701.28191.29111.3052

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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