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The mystery of confidence

Taking a break

UK business groups including the IoD and Chambers of Commerce were "horrified" as the government put the army on standby in preparation for a no-deal Brexit. Their members will shortly receive a letter warning them to prepare for a cliff-edge departure from the EU in 100 days' time. 

At first glance that looks like a trigger for further pressure on the pound: Military involvement is also cited as a possibility in the event of the no-deal Brexit that is apparently 'inevitable' because Parliament will ultimately reject the prime minister's withdrawal bill. What's not to fear?

Well, all of it, apparently. Investors simply do not see it happening. So sterling did quite well again on Tuesday. It was flat against the euro and the safe-haven yen, a third of a cent higher against the US dollar and stronger against all the other majors.

Not bending the knee

Today the US Federal Open Market Committee is generally expected to take its benchmark interest rate another 25 basis points higher. In view of tumbling oil prices and the parlous state of equity markets the Fed might be minded to hesitate in making that decision but it almost cannot. Why? Confidence.

Yesterday the US president made another intervention, warning the Fed not to "make another mistake" in raising the Funds rate. If the Fed were to hold back from making a move today, investors would have to imagine either that the president is now calling the shots or that the Fed is seeing something bad on the radar.

Those same investors do, however, expect the tone of the announcement to be dovish. Where, at one point, three more rate hikes had been in the pipeline for 2019, the expectation now is for no more than two. And one of those is questionable. What happens to the dollar tonight will depend on where the FOMC statement sits on the dove-hawk scale.

Inflation sort of matters

The FOMC meeting is not the only game in town. Britain and Canada will report on inflation. Tonight, New Zealand releases the figures for trade and third quarter growth and Australia publishes the ever-perplexing employment data.

With the Bank of England out of the policy-adjustment business until the Brexit picture becomes clear, only the Canadian inflation data have any real prospect of moving the currency. The headline rate is expected to have slowed from 2.4% to 1.9% in November.

In New Zealand analysts are going for slower growth of 0.6% in Q3 and a slight narrowing of the trade deficit in November. In Australia, the addition of 20k jobs is expected to leave the rate of unemployment unchanged at 5.0%, but only seldom do the forecasters get it right with the Australian employment data.

GBP broadly higher as investors disregard no-deal prospect

GBP broadly higher as investors disregard no-deal prospect

USD mixed ahead of this evening's Fed rate decision

USD mixed ahead of this evening's Fed rate decision

AUD awaits Australian employment figures

AUD awaits Australian employment figures

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