US Q3 GDP Expected to Show a Sharp Slowdown
As markets digest the more hawkish than expected FOMC policy statement, all eyes will now be on the advance estimate of US economic growth for the third quarter scheduled later in the day. The GDP data is expected to be more downbeat, with growth projected to slow considerably in the July – September period. The GDP data follows Federal Reserve’s (Fed) assessment which indicated that the US economy expanded at a moderate pace and turned up the heat around a possible December rate rise.
In the UK, the just out BoE data showed that mortgage approvals declined for the first time in four months in September. In Europe, German inflation and Euro zone’s consumer and industrial confidence print will be published in a while.
Pound Sterling – UK Markets
The Pound – US Dollar currency pair slipped below the 1.53 mark yesterday as the greenback rallied across the board following the publication of the hawkish FOMC October monetary policy statement. The Fed stood pat on its record low interest rates, but kept the possibility of a rate rise in the December policy meeting firmly on the table.
Shifting attention towards today’s economic data releases, the mortgage lender Nationwide earlier today reported that UK house prices rose above expectations for October amid persistent property supply constraints in the nation’s housing market. With demand up and supply stagnant, Britain’s home prices looks set to continue rising helped by low mortgage interest rates, strengthening earnings growth, and elevated consumer confidence. However, the just released BoE mortgage approvals data failed to back up this trend. British mortgage lending unexpectedly declined for September, but the pace of consumer credit flow and mortgage lending was the fastest in years. The data, however, had little impact on trading in the currency pair.
US Dollar – US Markets
The US Dollar rallied against the major currencies yesterday after the Fed policymakers kept the case for a December lift-off alive in the two day October monetary policy meeting which ended yesterday. Markets perceived this as more hawkish than expected as there were compelling reasons for the Fed to hold off policy tightening this year. The FOMC statement also indicated that the officials were no longer worried about global growth concerns and expects the economy to expand at a modest pace.
Moving ahead, odds for a Fed rate rise in the December meeting could take a hit or increase further depending on the preliminary third quarter US GDP report scheduled later today. A better than expected growth reading could provide more fodder to expectations for a December rate rise and add to gains in the US Dollar. However, market consensus is for today’s advance Q3 GDP estimate to show that economic growth is headed for a sharp slowdown. Also, on tap would be Fed’s preferred gauge of inflation for the third quarter, a weekly update on jobless claims and pending home sales data for September.
Euro – European Markets
The shared currency has recovered some of the lost ground against the US Dollar this morning. The currency pair had retreated to two-month low yesterday in response to the unexpected hawkish tone at the FOMC meeting. On the data front, it is a busy day in the Euro area, amongst which German consumer price inflation and Euro zone’s industrial and consumer sentiment data will draw significant market attention. Markets anticipate that the preliminary annual German CPI data will show some improvement for October on the back of some recovery in energy prices. Also, it would provide the first hint of inflationary developments ahead of the Euro zone wide flash CPI readings tomorrow. Additionally, data from the Euro zone could show a slight easing in consumer and industrial sentiment for October in light of some worrying fundamental data that has come out in the currency union of late and after the ECB recently hinted at further introduction of easing measures.
Separately, German jobless rate remained steady at 6.4% for October, while unemployment ticked lower from the previous month’s sharp rise.
Other Currencies – Highlights
Yesterday, the Kiwi Dollar initially dropped below the 0.67 mark against the US Dollar after the US Fed left the door wide open to raise its key interest rates before the end of this year. Later, the New Zealand Dollar maintained its offered tone against the greenback, accentuated by RBNZ’s hints that it could cut interest rates again. The RBNZ kept its benchmark interest rate unchanged at 2.75% following three straight reductions, but the Kiwi Dollar dropped nonetheless as the New Zealand’s central bank sounded very dovish in its monetary policy statement. The RBNZ Governor, Graeme Wheeler warned that deeper rate cuts would be needed if the exchange rate moves higher and dampens import prices. However, he also added that robust growth in services and construction had helped offset the impact of weak dairy prices to make a fourth interest rate cut this year unwarranted.
Looking ahead, direction in the currency pair today will be determined by an advance reading of third quarter US GDP and New Zealand’s building permits data due in a few hours.