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German Purchasing Managers’ Indices and Italian budget weaken Euro

Published: Wednesday 24 October 2018

  • US President criticises Federal Reserve for rate hike plans
  • Bank of Canada rate hike expected
​​By David Johnson

A decline in German Purchasing Managers’ Indices (PMIs) for the service and manufacturing industries hit the Euro this morning. The composite index was the worst performing. Well, that, plus the ongoing disagreement between Italy and the EU over Italian plans to exceed the Eurozone budget deficit rules. Italy’s debt to Gross Domestic Product (GDP) ratio is 135%, so it is a big issue over stability and future problems.
Sterling stuck despite Euro’s fall

Were it not for the Brexit issues, Sterling would have ramped up against the Euro, but it is still trapped around €1.13 and just below $1.30. At the time of writing, we are awaiting UK mortgage approvals data, which is expected to be a tad down on the previous month. I doubt it will feature in Sterling’s activity if that is the case; there are too many other factors in play.
No diplomacy for the Dollar…

And President Trump has been criticising the Federal Reserve’s keenness to raise interest rates. The President said it is too early to tell, but maybe he regrets nominating Federal Reserve Chairman Powell. Just in case you hadn’t noticed, Trump has no diplomatic experience. The US Dollar remains strong ahead of this afternoon’s US PMIs. The forecasts are for small declines in the indices and that could allow the Pound to creep back above $1.30 and the Euro-USD rate to push up towards $1.15. In addition to the PMIs, we will get a couple of speakers from the Federal Reserve and the release of their Beige Book, a regional view of the state of the US economy and an important indicator for the markets.
Canada could raise interest rates – will it strengthen the CAD?

The other news this afternoon is the expected interest rate hike from the Bank of Canada (BoC). The forecast is for a hike from 1.5% to 1.75% in the BoC’s benchmark rate and we will get a statement and monetary policy report to explain whatever decision they make. The Canadian Dollar could well strengthen ahead of this announcement, but it would appear much of the expectation is priced into the CAD already. If they do hike the rate, it will be the first time the base rate has been there since 2008.
New Zealand Dollar could strengthen overnight – be prepared

Overnight tonight, we expect to see a narrowing of New Zealand’s trade deficit and that has the propensity to strengthen the Kiwi Dollar, so please don’t get caught out by that if you are a New Zealand Dollar buyer.
The best way to spread Christmas cheer?

And Lapland Safaris are hiring elves to guide visitors and to help them travel around the country whilst spreading joy and happiness. Rumours that you’ll have to pass through the seven levels of the Candy Cane forest, through the sea of swirly twirly gum drops, and then walk through the Lincoln Tunnel have not been confirmed.
Modern definitions
Sofa – A remote location
Imagination – Netflix for poor people and technophobes
Vintage – Second hand and more than five years old
Floor – A low shelf for clothes and stuff
Classic novel – Something you claim to have read
Terms and Conditions – Something you don’t read but agree to anyway
Tomorrow – The day everything can be achieved

Today's Major Economic Releases

Market BST Data/Event Previous Expected
EUR 09:00 EU: Flash Manufacturing Purchasing Managers' Index  53.2 53.0
EUR 09:00 EU: Flash Services Purchasing Managers' Index 54.7 54.0
EUR 09:00 EU: M3 Money Supply 3.5% 3.5%
USD 14:45 US: Flash Manufacuturing Managers' Index 55.6 55.4
USD 14:45 US: Flash Services Purchasing Managers' Index 53.5 54.1
CAD 15:00 Bank of Canada Overnight Rate 1.50% 1.75%
CAD 15:00 Bank of Canada Rate Statement    
CAD 15:00 Bank of Canada Monetary Policy Statement    
USD 15:30 US: Crude Oil Inventories 6.5m 3.6m
CAD 16:15 Bank of Canada Press Conference    
USD 19:00 US: Beige Book    
NZD 22:45 New Zealand: Trade Balance -1,484m -1,365m

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