Today’s Key Market Drivers: 14th September 2018

“Pound and Euro rally post key Central Bank Reports.”

Thursday saw two Central Banks issue important policy statements with the European Central Bank and Bank of England both keeping their interest rates on hold. The Bank of England remains generally upbeat about the overall economy but is still concerned about Brexit negotiations. The European Central Bank whilst positive about the outlook for Euro Area growth and a pick up in wages is still cautious about giving forward guidance on interest rate hikes in 2019 due to trade tariffs concerns with the USA. The ECB did confirm that is it still on track to wind up the multi-year billion-Euro stimulus program that saw it print money out of thin air and buy the bonds of financially stressed countries such as Italy, Spain, and Portugal. Traders bought both currencies higher post the statements which may now be a sign of things to come. I am very bullish on the Pound after a six-month sell-off and once the Brexit deal is reached I expect previously seen 2019 highs could be touched again before Xmas.

The US Dollar weakened post the release of August’s US Inflation figures which came in under estimates at 2.7% annualised vs the 2.8% the market expected. The US Fed will raise the official cash rate this month but with inflation coming in at a slightly slower pace traders took the view the US Fed may not be as hawkish about future rate hikes. Inflation is the #1 barometer a Central Banker looks at when it comes to raising or lowering interest rates and if inflation is rising, rates are going to rise and if inflation is falling or stagnant then interest rates will be lowered or left on hold in the case of the RBA and RBNZ. All other economic data numbers, wages, GDP, housing starts, manufacturing figures, retail sales, capital expenditure all feed into whether or not inflation is going to be rising or falling. What has also taken the shine off the US Dollar late this week is trade tensions with China easing. The White House reported that it has invited China officials to Washington for trade talks so there was no need to add to safe-haven US Dollar and Yen long positions.

The economic calendar for Friday showed China Retail Sales and Industrial Production numbers meeting market estimates but failed to sway any more buyers for the Aussie Dollar. The European trading session sees BOE Governor Mark Carney speaking in Dublin and in the US trading session we will get US Retail Sales and a University of Michigan Sentiment Survey. The market’s mood is currently bullish with no fear and I don’t expect that to change as we head into the weekend.

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About the Author: Andrew Barnett

Andrew is a professional trader and successful investor who has a strong focus on education. He is a regular Sky News Money Channel Guest and one of Australia’s most awarded and respected financial experts and is regularly contacted by the Australian Media for the latest on what is happening with the Australian Dollar. Director at LTG GoldRock, Andrew Barnett, guides thousands of traders around the world in the live market on a daily basis, advising them on buy and sell directions, as well as trading his own personal account. Andrew, a regular keynote speaker at trading and wealth-creation events throughout the Asia Pacific region, is an authorized representative registered with the Australian Securities and Investment Commission (ASIC).

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