USD: Fed’s favoured bringing the USD higher
The dollar has managed to pull itself out of its most recent nosedive in the past few days and the key to it continuing do so will be seen at 13.30 this afternoon. PCE or Personal Consumption Expenditure to the Federal Reserve is the favoured measure of inflation for rate setters in the US and more so than ever could the greenback do with the latest measure of inflation turning higher. Personal spending numbers are also released today ahead of tomorrow’s US jobs report.
Whisper it but the next 48hrs could easily bring about a sea change in the outlook for the USD as any positive surprise will see markets once again price in an interest rate hike by the US central bank by the end of the year. Expectations of a hike at the meeting on December 13th are currently running at 33% – the lowest level for 2 weeks.
Yesterday’s US GDP figure surprised to the high side and hinted at a much stronger domestic picture that we had previously expected. GDP will take a hit in Q3 as the impact of Hurricane Harvey is factored in.
Korea is still dragging on in the background with the reaction from the White House a mixture of threats and offers of diplomacy.
CNY/CNH: Making up for lost time
Overnight news from the Chinese manufacturing sector has lifted market sentiment with the official measure of Chinese manufacturing PMI hitting 51.7, rebounding from last month’s low. The factories of China are growing at a faster pace according to the number with inflation pressures rising mainly due to supply concerns over certain raw materials.
The Caixin PMI which focuses on smaller companies and is separate from the Chinese government’s oversight of the numbers is released overnight tonight and is expected to register a slightly lower reading.
Both CNY and CNH have been rather quiet overnight following a punch of strength earlier in the week. Onshore conditions are as such that we do not foresee a dramatic weakening of the CNY or CNH anytime soon.
GBP: Coming up for air
Once again the papers are full of Brexit back and forth and once again it is difficult to see whether sterling is paying any attention. Our thoughts are that it is not. Yesterday’s gains against the euro were the most seen in a day’s session since March 30th – the day after we triggered Article 50 – although this mainly seems to be a question of euro weakness more than sterling strength. There is little expected from sterling today but tomorrow’s manufacturing PMI release will see focus fall onto just how the weakened pound is helping exporters.
Have a great day.
Jeremy Cook, Chief Economist