The British pound is the chart to watch given the noise of Brexit and the noise of U.S. rates vs. BOE policy. We appear to be setting up for a larger move for 1.35 rather than the dull game of 1.40 consolidation, writes Bob Savage, CEO of Track Research Wednesday.
All else being equal, looser fiscal policy means tighter monetary policy. That phrase made FOMC Chair Powell a hawk and sent markets scrambling in the US scrambling from 2-3 hikes to 3-4 hikes expectations for 2018.
The stronger economic view from Powell drove bond yields higher, the U.S. dollar (EUR/USD) followed as commodities and equities fell. Whether he tweeks this point or not will be essential to trading markets in the U.S. today.
Regardless, rates now matter to the equation. With softer data providing a problem to higher yields – starting with the China PMI reports, extending as the BOJ surprised with less bond buying (they cut the 25-year buying from Y80bn to Y70bn) and continued with a softer French CPI along with a weaker Swedish GDP (0.9% vs. 1% expected).
The flash HIPC for the Eurozone was in line and the EU first draft for a Brexit Treaty was ugly for the UK with its Northern Ireland demands and the UK being bound to ECJ rules until the 2030s. This leaves the market waiting for more U.S. economic data with Chicago PMI slipping to a six-month low and Pending Home Sales dropped 4.7%, leading along with the second day for Powell testimony.
The big movers overnight are in British pound (GBP/EUR) and Swiss franc (CHF/EUR) and in EM.
Flows of money at the month-end are always noisy and not usually part of a broader trend game but today is worth paying attention to given the fact that the U.S. dollar (USD/EUR) seems to be bid for the first month in six.
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