Spotlight on a Quartet of Central Bank Meetings, U.S NFP to Wrap up An Eventful Week
The U.S dollar weakened against most of its peers on Friday after reigning supreme for most of last week. The greenback lost its steam as investors took profits following the release of GDP data, but still closed the week higher versus a the majors amid rising speculation that the Federal Reserve will raise rates in December.
In spite of mixed data published throughout the week, Friday’s report on the U.S gross domestic product pointed to a positive trent in US economic growth.US Consumer Sentiment dropped as per reports by the Conference Board on Tuesday and by University of Michigan on Friday. However, flash data on manufacturing and service sectors for October signaled a strong start for the fourth quarter with both indexes reaching the highest levels in 11 months. U.S. economic growth was also reported to accelerate at the fastest pace in two years in the third quarter, not to mention new home sales rising and the trade deficit narrowing.
No matter how encouraging the economic data were last week, the Fed is not expected to tighten rates at the policy meeting next week, which is being held just days before the presidential election. Therefore, reports such as ISM manufacturing due on Tuesday, Friday’s nonfarm payrolls report and ISM non-manufacturing may draw more attention.
In September, there were only 156,000 jobs added to the US economy, while the unemployment rate inched up to 5% from 4.9% in August. Last month’s readings was not only lower than expectations but also indicated a trend towards decreasing numbers over the last four months. For October, economists expect a 175,000 jobs gain and the jobless rate declining to 4.9%.
The British Pound hit a two-week low at $1.20812 last week ahead of the Bank of England Governor Mark Carney’s testimony before the House of Lords in London. GBPUSD recovered earlier losses later on as Carney pointed out that the recent moves in sterling seemed to be based on “the market’s perception of what the potential relationship will be between the United Kingdom and Europe,”. “It’s a bit early to be making that judgment.” he said.
The BOE Governor also reassured investors that the Brexit negotiation process will be pursued orderly and the government will attempt to “get the best deal possible”.
The most important data for the Cable reported last week was the third-quarter GDP, which reflected the economy’s performance in the period following the country’s Brexit vote. The Office for National Statistics stated that U.K. gross domestic product expanded 0.5% in the July-September period, which was lower than the unusually strong growth of 0.7% recorded in the second quarter, but it comfortably outpaced forecasts calling for an expansion of 0.3%.
Next week, the latest UK PMIs and Quarterly Inflation Report will be released before the BOE announces its rate decision on Thursday. Analyst expectations point to rates remaining unchanged at the meeting. However, remarks by BOE policymakers will be closely watched to determine whether there is a possibility of another rate cut in the coming months.
Unlike the Cable with a busy week ahead, the Euro is not likely to be pushed around by Eurozone-related data. The single currency fell to the lowest since early-March at $1.08502 last Tuesday and seems to have bottomed out at the level
Monday’s third-quarter Eurozone GDP report and October CPI will start a quiet week for the Euro. Manufacturing and service PMIs from Eurozone countries and the region as a whole will be reported on Wednesday and Friday, respectively. The upside for EURUSD seems limited as dollar bulls may remain in control around the FOMC meeting.
Moving on to Australia, the Australian dollar jumped more than 0.6% to as high as 0.77083 – the highest in a week, after inflation was reported higher than expected. Australia’s consumer prices accelerated at the pace of 0.7% last quarter, exceeding forecasts of a 0.5% increase, and paring bets the Reserve Bank of Australia will cut interest rates this year.
The Reserve Bank of Australia is scheduled to deliver its interest rate decision on Tuesday, November 1st. It is widely expected to leave rates unchanged and it may announce a state of neutrality. This announcement will be followed by a busy Friday for the Aussie with RBA Monetary Policy Statement and September’s Retail Sales on the calendar.
The New Zealand dollar, which closed the week almost unchanged compared to the greenback, is also going to welcome key reports next week including Employment Change and Unemployment Rate. The former is expected to come in at 0.6%, the latter, unchanged at 5.1%. The Kiwi is also likely to respond to the Fed’s interest rate decision.
Of the 3 commodity currencies, Canadian dollar was the weakest in the past week. Oil prices hitting three-week lows and economic data that surprised to the downside together weighed on the currency.
Crude oil witnessed a weak recovery after the Energy Information Administration stated that domestic crude supplies unexpectedly fell last week. U.S. crude stockpiles were reported to have fallen by 553,000 barrels last week, a result contrary to analyst forecasts and previous reports from the API that had reported an increase in stocks.
However, burdens on the crude price remained heavy as two-day talks between OPEC and non-OPEC oil producers in Vienna ended with nothing new but a promise that the world’s largest oil producers would keep on talking. Discussions will continue in late November, just days before the OPEC is supposed to finalize the accord that had previously been proposed in September.
The Loonie pared earlier losses on late Monday as Bank of Canada Governor Stephen Poloz signaled a deferral in cutting rates, even after the country’s disappointing economic data lately. Given the uneven growth in different parts of Canada, Poloz reiterated the central bank considered cutting interest rates but said further stimulus is complicated. Any decision to cut interest rates further will not be unleashed in the next 18 months, the BOC Governor said.
The Bank of Japan also has a monetary policy meeting scheduled next week but like the other three central banks, the BOJ is expected to make little or no changes to its current monetary policy framework.