European FX Outlook: Fed and UK manufacturing top the agenda

Mario Blascak, PhD Independent Analyst

What you need to know before markets open:
• FOMC is the Top market event for Wednesday with policymakers seen keeping rates steady for now to deliver rate hike in December.
• With banks in Italy and France closed for a national holiday and little on the economic calendar, the UK manufacturing PMI and FOMC will dominate the day.

Wednesday’s market moving events
•   China’s Caixin manufacturing PMI remained flat at 51.0 in October.
•   The UK manufacturing PMI is expected to remain flat at 55.8 in October.
•   ADP labor market report is expected to see 200K new jobs added in the US economy in October
•   ISM manufacturing PMI is expected to decelerate to 59.5 in October.
•   FOMC is seen holding its monetary fire with the rates in November hinting to December rate hike.
•   The Bank of Canada Governor Poloz set to testify for the second day before the Standing Senate Committee in Ottawa together with Deputy Governor Wilkins.

Major forex market movers
• Sterling gained some ground raising 0.5% against the US Dollar on Tuesday approaching $1.3300 area with UK manufacturing PMI unlikely to change the bullish trend ahead on key monetary policy meeting on Thursday.
• EUR/USD remained flat ahead of FOMC.

Tuesday’s macro summary
•   The Bank of Japan Governor Kuroda after the policy meeting said yen tends to weaken due to the divergence between BOJ, ECB, FED and that abnormal yen rises deviating from fundamentals would hurt the economy and accelerate deflation.
•   Headline inflation in the Eurozone rose 1.3% y/y while core inflation decelerated even steeper to 0.9% y/y in October, confirming disinflationary development that justifies dovish QE taper from ECB last week.
•   Third quarter GDP rose 0.6% q/q and 2.5% y/y in the Eurozone coming out slightly above estimates indicating the underlying recovery is gaining traction.
•   The unemployment rate in the Eurozone fell to 8.9%, the lowest since January 2009.
•   US Employment cost index rose in line with expectations by 0.7% q/q in Q3.
•   Chicago PMI rose to 66.2 in October, up from 65.2 in September, hitting the highest level since March 2011.
•   Conference Board consumer confidence improved increased again in October to 125.9, up from 120.6 in September.
•   Exile Catalan leader Carles Puigdemont agrees with new elections scheduled for December 21 while being summoned to Madrid court.
•   UK chief Brexit negotiator David Davis said in House of Lords that Brexit withdrawal agreements with EU will “probably favor the union” financially.

Author

Mario Blascak, PhD

Independent Analyst

Dr. Mário Bla&scaron;čák worked in professional finance and banking for 15 years before moving to journalism. While working for Austrian and German banks, he specialized in covering markets and macroeconomics.

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