Forex: No Surprises from BoC & ADP But GBP Comes Under Pressure

In an unsurprising move, the Bank of Canada decided to hold its benchmark lending rate at 1%, after two small hikes earlier in 2017. The BoC stated on Wednesday that it has decided to keep its target for the overnight rate right where it is, while rate hikes in July and in September continue to work their way through the economy. The central bank commented, “While higher interest rates will likely be required over time, the bank will continue to be cautious, guided by incoming data in assessing the economy’s sensitivity to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation.” The markets had expected the BoC to keep the rate steady but the news saw CAD come under selling pressure, with USDCAD trading up from 1.2660 to just above 1.2800 where it has steadied overnight.

The US ADP report also provided few surprises, with private sector jobs in the US increasing by 190K from October to November as forecast by the market. The ADP Research Institute commented that “The labor market continues to grow at a solid pace” and “Notably, manufacturing added the most jobs the industry has seen all year. As the labor market continues to tighten and wages increase it will become increasingly difficult for employers to attract and retain skilled talent. The markets look at the ADP report for clues on the “always impactful” NFP report due to be released on Friday.

GBP came under selling pressure on news that Michel Barnier, the EU’s chief Brexit negotiator, has told member states that the British government has just 48 hours to agree terms on a potential deal or it will be told that negotiations will not move on to the next stage. If talks do not move on to the next stage of discussions in December then the terms of a transition period will likely be pushed back until the next European council summit of leaders in March, by which time many businesses in the UK will have had to make decisions over their location and investments in the country. Prime Minister May told the UK Parliament, “We’re leaving the European Union, we’re leaving the single market and the customs union but we will do what is right in the interests of the whole United Kingdom,” and “nothing is agreed until everything is agreed.” GBP gave back many of its gains to trade as low as 1.3375 overnight.

EURUSD is little changed overnight, currently trading around1.1795.

USDJPY is 0.2% higher in early Thursday trading at around 112.48.

GBPUSD is 0.15% lower in early session trading at around 1.3373.

USDCAD is 0.15% higher overnight, trading around 1.2805.

Gold is little changed overnight, trading around $1,262.50.

WTI is 0.15% higher in early trading at around $56.12.

Major data releases for today:

At 10:00 GMT: Eurostat will release Eurozone Gross Domestic Product s.a. (QoQ) and (YoY) for Q3. Both releases are expected unchanged with Quarter-on-Quarter GDP forecast at 0.6% and Year-on-Year GDP forecast at 2.5%. Any significant deviation from the forecast is likely to see EUR volatility.

At 13:30 GMT: The US Department of Labour will release Initial Jobless Claims for the week ended December 1st and Continuing Jobless Claims for the week ended November 24th. Initial Claims are forecast to show a slight increase to 240K from the previous reading of 238K. Continuing Claims are forecast to come in slightly lower at 1.915M from the previous reading of 1.957M. Any significant deviation from expectations will see USD volatility.

At 16:00: European Central Bank President Mario Draghi is scheduled to speak in his capacity as Chair of the Group of Governors and Heads of Supervision (GHOS) in a press conference by the Bank for International Settlements, hosted at the European Central Bank in Frankfurt, Germany.