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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

GMT

CCY

EVENT

ACT

EXP

PREV

22:30

AUD

AiG Perf of Services Index (SEP)

48.9

-

45

23:01

GBP

BRC Shop Price Index (YoY) (SEP)

-1.8%

-

-2.0%

00:00

NZD

ANZ Commodity Price (SEP)

5.1%

-

3.2%

00:00

USD

Chicago FRB Evans Addresses CFA Society Event

-

-

-

00:30

JPY

Nikkei Japan PMI Services (SEP)

48.2

-

49.6

00:30

JPY

Nikkei Japan PMI Composite (SEP)

48.9

-

49.8

00:30

AUD

Retail Sales (MoM) (AUG)

0.4%

0.2%

0.0%

05:30

NZD

RBNZ’s McDermott Comments on Panel

-

-

-

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

07:00

EUR

ECB’s Nowotny Speaks in Vienna

-

-

Low

07:45

EUR

Markit/ADACI Italy Services PMI (SEP)

52.0

52.3

Low

07:45

EUR

Markit/ADACI Italy Composite PMI (SEP)

51.5

51.9

Low

07:50

EUR

Markit France Services PMI (SEP F)

54.1

54.1

Low

07:50

EUR

Markit France Composite PMI (SEP F)

53.3

53.3

Low

07:55

EUR

Markit Germany Services PMI (SEP F)

50.6

50.6

Medium

07:55

EUR

Markit/BME Germany Composite PMI (SEP F)

52.7

52.7

Medium

08:00

EUR

Markit Eurozone Services PMI (SEP F)

52.1

52.1

Medium

08:00

EUR

Markit Eurozone Composite PMI (SEP F)

52.6

52.6

Medium

08:30

GBP

Official Reserves Changes (SEP)

-

-$463m

Low

08:30

GBP

Markit/CIPS UK Services PMI (SEP)

52.2

52.9

Medium

08:30

GBP

Markit/CIPS UK Composite PMI (SEP)

52.3

53.6

Medium

08:30

GBP

BOE’s Broadbent Speaks in London

-

-

Medium

09:00

EUR

Retail Sales (MoM) (AUG)

-0.3%

1.1%

Low

09:00

EUR

Retail Sales (YoY) (AUG)

1.5%

2.9%

Low

10:30

GBP

UK PM May Speaks at Conservative Party Conf.

-

-

High

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.0992

1.1093

1.1148

1.1194

1.1249

1.1295

1.1396

GBP/USD

1.2488

1.2629

1.2678

1.2770

1.2819

1.2911

1.3052

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

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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