Good morning,

USD: Fed leaks

The USD was the biggest loser in yesterday’s trading. A leak ahead of the Fed meeting suggested that they felt rates were “just below” neutral. If you compare this with the minutes in October, where rates were a “long way” from the neutral rate, there is an obvious dovish tone. Risk was quickly on as the dollar plummeted, which saw a second rate hike in 2019 phased out of forecasts. The market now expects one more hike in December and one more in 2019.

I feel it is important to note that the autopilot feature is now very much disabled throughout the Federal Reserve as they are once again showing a heavy reliance on data. The driving force behind this change will be their concerns about a weakening global economy and the bubbling threat of further Chinese tariff tensions. US GDP was in line with the forecasts, cruising at 3.5%. One noticeable take away from the remaining data was the trade balance deficit ahead of further US tariffs. Given that inventories add 2.27% to the GDP print, this may unwind further down the line. US inflation is due out at 13:30 GMT. Referring to the CPI index, market consensus is looking at 1.9% vs 2.0% prior.

GBP: Bank of England weighs in

The government and the Bank of England released a variety of UK economic conditions under various Brexit scenarios. The results show that a “No Deal” situation would be far worse, compared to a “decent Brexit” where costs could be containable. A no deal situation could result in GBP falling 15% during a disruptive Brexit or 25% during a disorderly Brexit. Unsurprisingly, GBP dropped after these comments as the reality of nearing Commons vote hit home again.

An opinion poll yesterday showed that 52% of voters believed that Theresa May’s Brexit plan was the best available, which is crucial for her wider public support. This also gently applies pressure to MPs who are there to deliver on their constituent’s beliefs.

Have a great day.