Dollar still wobbly on tax delays

It’s been a difficult few weeks for Republicans in the House and today’s no different as they continue to try to rally the votes needed to get their tax bill through just as the Senate puts the final touches on their version. It’s of little relevance to foreign exchange markets which bill becomes the final edition, as long as enough votes are whipped and materialise early next week. The longer the tax issues continue to hold back the GOP leadership, the longer the dollar will remain wobbly and allow other currencies such as the JPY and CHF to gain.

European Union growth expected to outstrip UK for the foreseeable

As part of the European Commission’s regular growth forecast release, the EU’s forecasters see the prospects for the UK economy falling short of its European neighbours in the coming few years. Brussels now see UK growth falling to 1.1% in 2019, the year the UK departs from the European Union, leaving Britain set to have the lowest growth rate of almost any other EU state. Rather unsurprisingly it’s high levels of inflation, denatured trade routes and lacklustre business investment that’s been blamed for the UK’s expected poor performance but Brussels’ forecasters will themselves admit that their work is based on assumptions, specific scenarios and the actual outcome could be rather different.

Divorce deadline

Despite the circus in the UK Cabinet at the moment, sterling has remained relatively guarded. We believe this is on the basis that investors realise there, for now, is one less Brexiteer in the Cabinet and therefore the path to something softer than a diamond hard Brexit may be on the cards. The Financial Times has reported that the EU is giving Britain two to three weeks to set out how much it is prepared to pay in the Brexit divorce settlement. This follows rumours last weekend that a figure of around £58 billion had been roughly agreed.

Opinion polls still show that were an election to take place today then my namesake would be picking out red drapes for the Downing St dining room and so, to keep herself in power, we will likely see her grab the third rail of these Brexit negotiations and offer up a divorce payment to get things going.

Kiwi’s getting warmer

Despite lowering their growth forecasts and keeping interest rates as is, the RBNZ meeting overnight has pushed the NZD higher by around 0.5%. The Bank’s forward guidance now projects that its first hike of a new cycle will take place in Q2 2019 compared to Q3 previously. While a small move in expectations it was enough to propel the kiwi higher. The currency will have also found succour in the Bank’s estimates that the overall impact of the new government’s policy is a positive stimulus to aggregate demand of about 0.5% of GDP.

Have a great day.