GBP Outlook, US Dollar, Brexit, US Retail Sales – Talking Points
- The British Pound may fall on UK CPI data amid fizzling Brexit hopes
- Ongoing uncertainty over EU-UK divorce may force BoE to cut rates
- USD may fall on retail sales unless demand for liquidity overwhelms
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The British Pound may fall on a cascade of UK CPI data if price growth for September shows a soft print. A contributing factor behind weaker inflation and business confidence has in large part to do with the uncertainty associated with the UK’s future. BoE Monetary Policy Committee Member Gertjan Vlieghe said that stimulus may be required if uncertainty about Brexit continues to negatively impact the economy.
Business and consumer confidence continue to be bruised by prolonged EU-UK negotiations which has in turn pressured the BoE to consider easing measures. Furthermore, the external backdrop has not been doing favors for the UK economy either. Last week, IMF Director Kristalina Georgieva warned of a “synchronized slowdown” with new growth forecasst for 2019 at a new post-recession low of three percent.
Today, BOE Governor Mark Carney will take part in a panel discussion at the annual IMF conference in Washington. His commentary – particularly in the context of Brexit – may pressure the British Pound. ECB Executive Board Member Philip Lane will also be speaking at the event which could pressure Euro crosses if it further undermines growth prospects in the Eurozone.
Market volatility may also be amplified by the publication of a series of US retail sales reports. Since June, economic data out of the US has improved, but more recently its been slumping. A lower-than-expected print in retail sales may boost what are already ultra-dovish Fed rate cut bets. Overnight index swaps are currently pricing in a 74 percent probability of a 25bps cut by the end of this month.
While easing expectations at this particular point in time may weigh on the US Dollar, demand for liquidity amid a recent setback in US-China diplomatic relations may overwhelm the pressure of Fed rate cut bets. The Greenback may also get an additional tailwind if speakers at the Institute of International Finances’ annual meeting induces risk aversion if their findings reveal growing vulnerabilities in the global financial system.
Market Analysis of the Day: Australian Dollar, Off-Shore Yuan Fall After China Threatens Retaliation for US Hong Kong Bill
AUD/JPY chart created using TradingView
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--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitri on Twitter
