GBP/USD has recorded considerable losses in the Wednesday session. In North American trade, the pair is trading at 1.2900, down 0.65% on the day. On the release front, there are no major British or U.S events. British mortgage lending fell to 38.5 thousand, shy of the estimate of 39.0 thousand. In the U.S, New Home Sales dropped sharply to 553 thousand, well short of the estimate of 627 thousand. On Thursday, the U.S releases core durable goods orders and unemployment claims.
Geopolitical tensions are escalating, which has sent jittery investors in the direction of the safe-haven U.S dollar. These include the U.S-China trade war, the uproar over the killing of a Saudi journalist in Turkey. There are headaches in Europe as well, with concerns over the Italian budget and the Brexit negotiations. Prime Minister May continues to face difficulties with a restless cabinet, as some ministers are uneasy about her remarks last week that she was open to extending the transition period. Brexiteers are also unhappy that May appears willing to accept the Irish backstop clause without a time limit, which could leave the UK tied to the EU for an interminate period of time. With just five months until Britain leaves the EU, the uncertainty surrounding Brexit continues to weigh on the pound, which dropped below the 1.29 line earlier on Wednesday.
With the Federal Reserve widely expected to raise rates in December, what can we expect in 2019? Many economists expect three rate hikes next year, and this was reinforced by Dallas Federal Reserve Bank President Robert Kaplan on Wednesday. Kaplan said he expects rates to rise into a range of 2.5% to 2.75%, or more likely, into a range of 2.75% to 3.00%. Kaplan noted that his estimate of a “neutral rate’ is slightly below 3% – anything above this level would move rates into a “restrictive’ stance, which could hamper economic growth and push inflation lower. The stock markets received a jolt this week as Chinese growth slipped to a 10-year low in the third quarter, and further weak numbers out of China could affect the U.S economy and cause the Fed to scale back its rate hike plans for 2019.
