Key Points From This Week
GBP has been the standout performer, ending the week highest against USD out of the G10 currencies. The continued short squeeze related to receding risks of a no-deal Brexit have been the main driver. NZD on the other-hand has been the weakest out of the G10 currencies against USD. Despite a more supportive backdrop of improved expectations regarding US – Sino negotiations, there is an element of caution ahead of the RBNZ rate decision next week.
Fed Cuts Rates By 25 Basis Points
The Fed reduced its headline rate by 25 basis points to 1.75% - 2%, as expected by the majority of market participants. Dissent among policymakers was higher than expected with three voting members voting against a cut while seven voting members backed the move, which is only the Fed’s second rate reduction in 11 years. Dissent in the ranks has weakened the outlook for further Fed easing this year.
New US Sanctions on Iran
Tensions between the US and Iran threatened to boil over following an alleged Iranian drone strike on Saudi oil processing sites which caused a 20% spike in WTI prices. Following initial hostile rhetoric from the US, including direct comments from President Trump – tensions since subsided with the US choosing to apply further economic sanctions on Iran over engaging in military action.
Bank of England Says Cuts Growth Forecasts
The Bank of England kept rates unchanged at it’s September meeting this week though the meeting had a clear dovish tilt. Carney highlighted rising risks from ongoing US – Sino trade tensions as well as the persistent uncertainty around Brexit as key threats to the economy. These risks caused the bank to revise its growth outlook lower noting: "The longer those uncertainties persisted, particularly in an environment of weaker global growth, the more likely it was that demand growth would remain below potential.
SNB Uses New Monetary Policy Tool
The SNB held rates at minus .75% though lowered its inflation forecasts for the year ahead and 2020 noting a deterioration in global economic conditions. However, the central bank headed by governor Jordan used a new monetary policy tool this month as it adjusted the basis for calculating negative interest rates with the exemption threshold due to be updated monthly from November 1st, which the bank explained will reflect its balance sheets over time.
Key Events Next Week
US Trade Balance & GDP
US Trade Balance data and GDP will be back in the spotlight. Although there has been an improvement in US -Sino relations over recent weeks, any widening of the deficit (specifically with China) is likely to put pressure on negotiations. Trump has proven just how unpredictable he can be and if the data is disappointing this could lead to an adverse reaction from Trump.
RBNZ Rate Decision
RBNZ rate decision next week is not expected to see the central bank cut rates again. However, at the last meeting, along with the RBNZ unexpectedly cutting rates by a larger-than-expected 50 basis points, the bank signalled that further cuts would likely be necessary. As such, the market is wary of a further move, which has weighed on NZD price action this week.
Keep An Eye On
US & Iran
Headlines around US & Iran. Although Trump has stepped back from military action, the situation remains volatile and the prospect of a further escalation in tensions cannot be ruled out. Any negative headlines will be bullish for WTI prices and negative for equities and risk assets.
UK Supreme Court
The ruling from this week’s UK Supreme Court hearing is due next week and could be a significant driver of near term GBP price action. Should the court rule against Johnson, determining that he did act illegally, this could pave the way for parliament to be recalled earlier than expected. Such a result would create a deeper GBP short squeeze.
Please note that this material is provided for informational purposes only and should not be considered as investment advice. The views discussed in the above article are those of our analysts and are not shared by Tickmill. Trading in the financial markets is very risky.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!