British Pound May Suffer Deeper Losses as PM May Talks Brexit

2016-12-20 10:49:00

Talking Points:

British Pound at risk as panel questions PM May on Brexit strategy
Japanese Yen gains as Bank of Japan keeps status-quo policy stance
US Dollar gains, Kiwi underperforms on hawkish Yellen comments

Brexit jitters may take center stage in otherwise quiet European trade as UK Prime Minister Theresa May is questioned by the House of Commons Liaison Committee on her plans for departure from the European Union. The issue of access to the EU single market has always been a touchy subject with investors. It may prove to be even more so this time around after Scotland’s First Minister Nicola Sturgeon threatened to hold another independence referendum in the event of a “hard Brexit” scenario. A vague position on this front seems likely to weigh on the British Pound.

The Japanese Yen underperformed in Asian trade after the Bank of Japan opted to keep its monetary policy stance unchanged at its final policy meeting of 2016. Traders seemed to have suspected that the currency’s rapid plunge to 8-month lows since the US presidential election may improve inflation prospects sufficiently-enough to at least discuss scaling back stimulus efforts. Governor Haruhiko Kuroda would have none if however, saying the central bank is still far away from its price target and dismissing calls to rethink its posture as premature.

The New Zealand Dollar fell alongside US 2-year Treasury bond futures, suggesting the hawkish shift in the markets’ 2017 Fed policy outlook may have captured the spotlight anew. Indeed, the US Dollar traded broadly higher against its major counterparts. The Kiwi’s outsized losses among the non-Yen majors may reflect the currency’s elevated sensitivity to an adverse shift in rate spreads considering it is the highest yielder in the G10 FX space. In fact, the correlation between NZD/USD and the front-end US bond future is now 0.66 on rolling 20-day studies.

As for the catalyst pushing the investors’ focus back to Fed rate hike speculation, a speech from Chair Janet Yellen seems to have been the culprit. She said the US jobs market is the strongest it has been in nearly a decade and noted signs that wage growth is picking up in a commencement speech at the University of Baltimore. Yellen added that economic gains are finally raising most living standards.

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Asia Session

GMT	CCY	EVENT	ACT	EXP	PREV
21:45	NZD	Food Prices (MoM) (NOV)	-0.1%	-	-0.8%
0:30	AUD	RBA Dec. Meeting Minutes
1:00	CNY	Swift Global Payments CNY (NOV)	2.0%	-	1.7%
2:51	JPY	BOJ Policy Rate	-0.10%	-0.10%	-0.10%
5:30	JPY	Nationwide Dept Sales (YoY) (NOV)	-2.4%	-	-3.9%
5:30	JPY	Tokyo Dept Store Sales (YoY) (NOV)	-1.4%	-	-4.4%
6:30	JPY	BOJ Governor Kuroda Gives Press Conference	-	-	-

European Session

GMT	CCY	EVENT	EXP/ACT	PREV	IMPACT
7:00	CHF	Trade Balance (NOV)	3.64b (A)	2.66b	Low
7:00	CHF	Exports Real (MoM) (NOV)	-0.4% (A)	-6.7%	Low
7:00	CHF	Imports Real (MoM) (NOV)	-4.2% (A)	2.6%	Low
7:00	EUR	German PPI (MoM) (NOV)	0.3% (A)	0.7%	Low
7:00	EUR	German PPI (YoY) (NOV)	0.1% (A)	-0.4%	Low
7:00	JPY	Convenience Store Sales (YoY) (NOV)	0.5% (A)	0.2%	Low
9:00	EUR	Eurozone ECB Current Account SA (OCT)	28.4b (A)	27.7b	Low
9:00	EUR	Eurozone Current Account NSA (OCT)	32.8b (A)	32.2b	Low
11:00	GBP	CBI Retailing Reported Sales (DEC)	20	26	Low
11:00	GBP	CBI Total Dist. Reported Sales (DEC)	-	34	Low
14:00	GBP	UK’s May Speaks to Parliament Brexit Panel	-	-	Medium