The British pound has posted losses in the Tuesday session. In North American trade, GBP/USD is trading at 1.3123, down 0.55% on the day. On the release front, there are no British releases on the schedule. In the US, the Richmond Manufacturing Index softened to 12 points, well off the forecast of 19 points. This marked its weakest gain since June. Wednesday will be busy. The UK releases Preliminary GDP, with an estimate of 0.3%. In the US, there are two key events – Core Durable Goods Orders and New Home Sales.
Britain’s manufacturing sector continues to expand, but the data is pointing to slower growth in the third quarter. CBI Industrial Order Expectations, which surveys sentiment among manufacturers, showed a decline for the first time in over a year. Earlier in October, two key manufacturing indicators softened. Manufacturing Production dipped to 0.4% in August, down from 0.5% a month earlier. Still, this beat the estimate of 0.2%. As well, Manufacturing PMI slowed to 55.9 in September, compared to 56.9 in August. Brexit is a constant concern for investors, and any signs of weakness in the economy could trigger the sell-off of British pounds in favor of safe-haven assets, such as gold and the Japanese yen.
Who will take over at the Federal Reserve? The markets are keeping close tabs on the central bank, as Janet Yellen’s 3-year term expires in February. President Trump has said he will nominate a new Fed head in the coming days, and the front runners are economist John Taylor and Federal Reserve Governor Jerome Powell. Taylor advocates a rule in which rates which be as high as 3 percent, given current economic conditions. Powell is more closely aligned to Fed Chair Janet Yellen’s monetary stance which advocates an incremental increase in rates. With the two candidates representing sharply differing views on interest rate levels, Trump’s choice for the new Fed chair could have an effect on monetary policy and the strength of the US dollar. Still, most economists are of the view that monetary policy will be largely driven by the performance of the US economy. Inflation levels remain weak and may not reach Fed’s target of 2 percent before 2020, but that has not dampened expectations of a December rate hike. According to CME FedWatch, the odds of a raise in December stand at 96 percent.
