Good morning,

USD: A strong week

What can we say that hasn’t already been said about the US dollar? Another round of strong data – durable goods orders and jobless claims yesterday afternoon – have heightened expectations of a beat on today’s GDP report. Needless to say, the dollar is only going one way, something that has been boosted by weakness elsewhere on another round of tech earnings overnight, particularly the retail behemoth Amazon.

Despite all the good news around earnings, it was slightly incongruous to see the yen and Swiss franc also rallying yesterday, typically havens that are bought when things are starting to look a little iffy. Pressures in some emerging markets – Turkey and Argentina in particular – have scared some people as well as some movement out of positions ahead of the 10 day Golden Week holiday in Japan that has seen the yen strengthen.

How far the dollar can continue higher depends on how quickly it makes its gains. Sharp moves higher will prompt the central banks of emerging market currencies to worry about inflation and could cause wider equities to look more sickly than they are now, heightening the chance that some in markets look for a Federal Reserve cut by the end of the year.

For now, we must wait on this afternoon’s GDP announcement and bear in mind that there has been a lot of dollar strength on good data and ending the week with a dollar lower on a ‘buy the rumour, sell the fact’ move cannot be completely excluded.

GBP: Waiting on a spark

Sterling has had a listless week and continues to trade at the behest of other currencies. Structured data on Brexit has been spectacularly thin on the ground this week and without that impetus – either positive or negative – traders have no real incentive to get involved in sterling.

As it is Friday, and with politicians back in Westminster ahead of next month’s European elections we must be mindful that sterling can often have a volatile Monday depending on what is said/leaked in the Sunday newspapers and on the political talk shows. Expect a lot of focus to fall on the leads that the Brexit party has in opinion polls, the splits between Remainer parties and the schism within the Labour party over whether to position as in favour or opposition to leaving the European Union.

The government didn’t announce plans to push for either another meaningful vote on her deal or a rumoured vote on the Withdrawal Agreement bill next week and so, absent a breakthrough in the talks between the government and the Labour party in their talks, Brexit and the pound are set to remain listless.

CNH: Looking for calm

Chinese President Xi speaking at the opening of a forum on the country’s Belt and Road trade plan told those gathered that China will not engage in currency depreciation and allow the market to play a bigger role in the valuation of the currency on a daily business. According to President Xi, the yuan will be kept at a ‘reasonable, equilibrium’ level/

We anticipate this to be between 6.60 and 6.80 in the near-term.

Have a great day and a better weekend.