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What to Expect from BoE as Currencies Fall on Trade Worries

  • Kathy Lien
  • 7 November 2019

What to Expect from BoE as Currencies Fall on Trade Worries

 

Daily FX Market Roundup November 6, 2019

 

All of the major currencies traded lower today on reports that the first part (phase one) US-China trade deal could be delayed to December.After years of back and forth, no one is surprised that there are more setbacks. When President Trump made the initial announcement, the lack of written agreement or details should have been the first sign of trouble. Investors were hopeful that when finalized, the deal would entail a delay to the December 15th tariffs. US officials suggested that the tariffs can be eliminated completely which would make the wait worthwhile but a lot can change between now and then. There are still key areas of disagreement that could scuttle the deal last minute.

 

The Australian dollar was the most sensitive to today's reports but USD/JPY, euro, sterling and the New Zealand dollar fell as well.AUD/USD in particular could extend its slide below .6850 if tonight's trade data miss expectations. Weaker economic reports from New Zealand and Canada should keep those currencies under pressure. We learned last night that the unemployment rate in New Zealand increased from 3.9% to 4.2% in the third quarter as average hourly earnings growth slowed to 0.6% from 1.1%. With this slowdown in the labor market, the Reserve Bank of New Zealand will need to think hard about another rate cut before the end of the year. As for CAD, the continued contraction in manufacturing activity will not only worry their central bank but should also drive USD/CAD above 1.32.

 

The focus tomorrow will be on sterling, which is easing off 5 month highs ahead of the Bank of England's monetary policy announcement.The BoE is widely expected to leave interest rates unchanged but the decision may not be unanimous. The table below shows unevenness in the UK's economy since their last policy meeting. Retail sales stagnated, the unemployment rate increased, earnings growth slowed, CPI rose very modestly but service and manufacturing activity improved. Chances are the decision to keep rates steady will be unanimous but if one or two members vote in favor of an immediate rate cut, we could see a quick and aggressive sell-off in GBP. The Quarterly Inflation Report comes next and it could entail changes to their growth and inflation forecasts. There is no longer a serious risk of a no deal Brexit but Brexit itself has hurt investment and growth at a time when inflation is lower across the globe. All of this suggests that the risk tomorrow is to the downside for the British pound.

 

There were no major US economic reports released today but risk aversion and positive comments from Fed Presidents drove the greenback higher against all of the major currencies.   That includes the euro, which extended lower for the third day in a row. Eurozone data was actually better than expected with German factory orders rebounding, EZ retail sales growing and service sector PMIs revised higher. However the German government's reluctance to provide fiscal stimulus and the risk of auto tariffs has kept the currency under pressure. Today, Germany's finance minister said "they are able to act if there's a crisis but there isn't." President Trump's decision on EU tariffs is due later this month.

 

 

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About the Author
Kathy Lien
Kathy Lien is Managing Director and Founding Partner of BKForex. Having graduated New York University’s Stern School of Business at the age of 18, Ms. Kathy Lien has more than 13 years of experience in the financial markets with a specific focus on currencies

Ms. Kathy Lien is Managing Director of FX Strategy for BK Asset Management and Co-Founder of BKForex.com. Her career started at JPMorgan Chase where she worked on the interbank FX trading desk making markets in foreign exchange and later in the cross markets proprietary trading group where she traded FX spot, options, interest rate derivatives, bonds, equities, and futures.

In 2003, Kathy joined FXCM and started DailyFX.com, a leading online foreign exchange research portal. As Chief Strategist, she managed a team of analysts dedicated to providing research and commentary on the foreign exchange market.

In 2008, Kathy joined Global Futures & Forex Ltd as Director of Currency Research where she provided research and analysis to clients and managed a global foreign exchange analysis team. As an expert on G20 currencies, Kathy is often quoted in the Wall Street Journal, Reuters, Bloomberg, Marketwatch, Associated Press, AAP, UK Telegraph, Sydney Morning Herald and other leading news publications.

She also appears regularly on CNBC’s US, Asia and Europe and on Sky Business. Kathy is an internationally published author of the bestselling book Day Trading and Swing Trading the Currency Market as well as The Little Book of Currency Trading and Millionaire Traders: How Everyday People Beat Wall Street at its Own Game all published through Wiley. Kathy’s extensive experience in developing trading strategies using cross markets analysis and her edge in predicting economic surprises serve key components of BK’s analytic techniques.