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Brexit confusion hits growth forecast

Brexit confusion hits growth forecast

GBP
Yesterday’s retail sales report was surprisingly positive with monthly retail sales gains of 1.4% and by 3.6% year-on-year in November. Although the figures are roughly double the forecasts, the ONS commented that shopping habits are tending to move earlier into November as a result of Black Friday and Cyber Monday discounts.

The Bank of England MPC unanimously voted to keep rates and Monetary Stimulus unchanged, as expected, amid Brexit uncertainty that has “intensified considerably.” Policymakers are confident that the continued slide in oil prices will help to drag inflation below 2.0% soon. However, while Carney and Co wait for Brexit clouds to clear, there is a strong chance that interest rates will rise relatively rapidly if the UK and EU manage to avoid a no-deal Brexit.

Today’s warning from the Bank of England’s decision to downgrade their growth forecasts owing to Brexit uncertainty is essentially a nod to the growing likeliness of a no-deal Brexit. The Pound traded as high as 1.2706 against the Dollar but fell against the Euro from an opening price of 1.1080.

UK Parliament has started its winter recess and will reconvene in the second week of January when they are expected to begin discussing May’s deal. Today we see UK Q3 GDP, which is forecast to remain unchanged from the previous estimate at 0.6% quarter-on-quarter.

USD

The US Dollar suffered some intense selling pressure yesterday and was being weighed down by renewed fears of an inversion in the yield curve, seen as a reliable indicator of a recession down the road. The not-so-dovish Federal Open Market Committee policy decision/outlook led to a rise in short-term and a fall in the long-dated yields, which eventually affected the Greenback in a negative manner.

The Greenback was further pressured by disappointing Philly Fed Manufacturing index, which plunged to 9.4 in December from 12.9 in the previous month.

Today we see the release of important US macro data including the final version of Q3 GDP and November durable goods orders data which might cause some short-term volatility on the last trading day of the week.

EUR

The Euro gained some support yesterday with the dispute between Italy and the European Commission being resolved which helped the currency rise to the mid 1.1400 levels. Tough trading condition for the US Dollar also helped with the slight recovery.

Thursday saw Europe’s current account surplus rise more sharply than expected, which helped provide the Euro with more momentum going into Friday’s session.

Data today is very minimal across Europe, keeping in line with the quiet nature of this week for the single currency. There are GDP numbers out of France, Italian business confidence and trade balance is due out as well as GDP number from the UK. The main news is out of the US.

Data to Watch:

00:01 GBP Gfk Consumer Confidence (Dec)
07:00 EUR Gfk Consumer Confidence Survey (Jan) (Germany)
09:30 GBP Gross Domestic Product (YoY) (Q3)
09:30 GBP Gross Domestic Product (QoQ) (Q3)
09:30 GBP Public Sector Net Borrowing (Nov)
13:30 USD Gross Domestic Product Price Index (Q3)
13:30 USD Gross Domestic Product Annualized (Q3)
13:30 USD Personal Consumption Expenditures Prices (QoQ) (Q3)
13:30 USD Core Personal Consumption Expenditures (QoQ) (Q3)
13:30 USD Durable Goods Orders (Nov)
13:30 USD Durable Goods Orders ex Transportation (Nov)
13:30 USD Durable Goods Orders ex Defense (Nov)
13:30 CAD Gross Domestic Product (MoM) (Oct)
13:30 CAD Retail Sales (MoM) (Oct)
13:30 CAD Retail Sales ex Autos (MoM) (Oct)
15:00 USD Personal Consumption Expenditures – Price Index (MoM) (Nov)
15:00 USD Personal Spending (Nov)
15:00 USD Core Personal Consumption Expenditure – Price Index (YoY) (Nov)
15:00 USD Core Personal Consumption Expenditure – Price Index (MoM) (Nov)
15:00 USD Personal Consumption Expenditures – Price Index (YoY) (Nov)
15:00 USD Personal Income (MoM) (Nov)

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