U.S. Advance GDP Data Awaited, ECB and BOC Monetary Policy Meetings Under the Spotlight

U.S. shares soared strongly to hit record closing highs on Friday. At the close in NYSE, the S&P 500 (SPX) gained 0.51 percent, to 2,575.21, up 0.9 percent for the week and posting a sixth week of gains. The Dow Jones Industrial Average (DJI) also registered a sixth week of gains after having added 0.71 percent, to end at 23,328.63 on Friday. The stock benchmark index broke above 23,000 this week and record a jump of 2 percent for the week.

Meanwhile, the Nasdaq Composite (IXIC) climbed 0.36 percent, to 6,629.05 to post its fourth week of advance. U.S. equities were supported after the U.S. Senate passed a budget resolution for 2018 on Thursday, which is believed to pave the way for President Donald Trump’s tax-cut plan to be approved without Democratic support.

The U.S. dollar also witnessed a strong bullish run on Friday with the greenback jumping higher versus most of its majors on Friday as boosted by optimisms over the progress on tax reform and speculation that a new Fed chair would continue a market-friendly monetary policy. The U.S. dollar index, which gauges the strength of the greenback against a trade-weighted basket of six major currencies, rose by 0.57% to 93.54.

In an interview with Fox Business Network on Friday, President Donald Trump said that he was considering nominating both Fed Governor Jerome “Jay” Powell and Stanford University economist John Taylor for the central bank’s top two posts. Incumbent Fed Chair Janet Yellen’s term will end in February 2018 while the vice chair position is also open after Stanley Fischer resigned effective a week ago. Decision on a new chair will be announced by November 03rd.

The dollar was also boosted by upbeat economic data after the National Association of Realtors on Friday reported that existing home sales rose 0.7% to a seasonally adjusted annual rate of 5.39 million units last month. The reading beat analysts’ forecast of a 1% decline to a rate of 5.30 million.

For the week ahead, the U.S. is to release preliminary figures on third-quarter economic growth on Friday amidst expectations calling for an annual growth rate of 2.6% after a strong reading of 3.1% in the previous quarter. The decline is due to expected losses in retail sales, industrial production, homebuilding and home sales caused by Hurricanes Harvey and Irma.

Before the release of the GDP report, market participants will also await data on durable goods orders and new home sales scheduled to be published on Wednesday as well as data on weekly jobless claims due on the next day.

Meanwhile, the Canadian dollar slumped to one-and-a-half-month low after the country released subdued inflation data and retail sales data. The Loonie lost more than 1 percent against its American counterpart, sending the pair USDCAD to as high as C$1.2615 – the strongest level since August 31st.

Elsewhere a slump in the Canadian dollar added to upside momentum in the greenback after Canada released subdued inflation data and retail sales data growth missed expectations. Indeed, Canada’s annual inflation rate accelerated higher in September for a third straight month, came in at 1.6% last month after a rise to 1.4% in August. However, the reading was slightly below the expected 1.7% projection and also below the Bank of Canada’s preferred 2% target.

By contrast, Canadian retail sales unexpectedly fell in August, contracting by 0.3% which completely missed the expected +0.5%.

Next week, the Bank of Canada’s interest rate decision is due on Wednesday, with most experts expecting the central bank to hold its benchmark rate unchanged at 1.0% after the bank had surprisingly hiked rates for the second consecutive time at its previous meeting in September.

The British Pound reversed higher on Friday, adding 0.24% to $1.3190 after both European Council president Donald Tusk and UK Prime Minister Theresa May attempted to downplay claims that Brexit negotiations had reached an impasse. Sterling lost ground on Thursday following a report published by the Office for National Statistics which showed UK retail sales plunged deeper than expected in September.

Particularly, UK retail sales slipped by 0.8 percent on a monthly basis following rises in July and August, sending growth rates of prices in the third quarter to its lowest annual rate since 2013. Economists only forecast a decline of 0.1 percent.

The Office for National Statistics is to report preliminary data on U.K. economic growth for the third quarter on Wednesday with economists forecasting that the report will show the economy grew 0.3% in the three months ended September 30. The U.K. economy also expanded at the rate of 0.3 percent in the previous three-month period. If confirmed, the British economy would grow 1.4% in the third quarter on an annualized rate.

Turning to the Euro, the single currency closed the week lower, sending the pair EUR/USD down 0.64 percent. The European Central Bank’s latest interest rate decision is due on Thursday, with no major policy changes expected. Even though, investors will focus on President Mario Draghi’s press conference which is scheduled 45 minutes after the rate announcement for fresh clues on the ECB’s plan to start unwinding its monthly quantitative easing program.

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