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Is everyone ready for Brexit?

Attack of the doves

A rate cut by the Federal Reserve, emollient words from the Bank of Canada and the possibility of additional stimulus in Japan all combined to lay a blanket of dovishness over global monetary policy. The NZ dollar was the main beneficiary and the Loonie suffered most among the majors.

As expected, the Federal Open Market Committee lowered the fed funds rate target range by 25 basis points to 1.5%-1.75%, its third cut this year. The wording of the statement was mostly similar to September's but the promise to "act as appropriate" was removed, suggesting to some that further rate cuts are not under consideration by the FOMC. Even so, investors sniffed a lack of hawkishness and the dollar moved lower after the announcement. It gave up half a cent each to sterling and the euro.

The Canadian dollar gave up much more, losing a cent and a half to sterling and falling 0.9% on average. Although the Bank of Canada kept its benchmark rate steady at 1.75%, the governor's opening statement at his press conference had an unexpected twist. He said the Governing Council discussed a rate cut "as a form of insurance" against downside risks. The Loonie lost an almost-immediate three quarters of a cent. By contrast, there was no reaction whatsoever this morning when the Bank of Japan hinted at lower rates in the future.  

Mixed signals

There was nothing among Wednesday's economic statistics to whip up emotion among investors. The European Commission's confidence measures were little changed in October. US gross domestic product expanded by a provisional 0.5% in the third quarter, beating forecast.

As do-or-die Brexit day passes without event, a look back to other key moments in the saga shows sterling 12.6% lower against the US dollar and 11.3% down against the euro from its pre-referendum levels. Compared with the original date of 29 March those losses are 1.1% and 0.5%. More optimistically, since the end of September the pound has strengthened by 5.1% and 3.1% against the dollar and euro, with an average gain of 4.2% and no losses.

The big currency mover on Wednesday was the South African rand. It came to grief when a mid-term budget statement revealed the immense cost of bailing out the state power utility, Eskom. The rand is down by 2.8%.

GDP and payrolls

After the US set the ball rolling yesterday there will be provisional GDP data today from Spain, Italy, Euroland and Canada. Friday's highlights will be the first round of purchasing managers' index readings and the US employment report.

The euro zone's gross domestic product is forecast to have come close to stalling in Q3, growing by just 0.1%. Euroland unemployment should be unchanged at 7.4%. Nonfarm payrolls in the United States are expected to have grown in October by just over half the 160k monthly average for 2019.  

In theory, the coming general election should mean that hospitals, education, law and order and suchlike should replace Brexit as the central media focus for the next six weeks. In practice, sterling is unlikely to get any easy break.

USD: Fed rate cut as expected

USD: Fed rate cut as expected

NZD: Makes most of Fed move

NZD: Makes most of Fed move

CAD: Knocked by BoC dovishness

CAD: Knocked by BoC dovishness

EUR: Confidence little changed

EUR: Confidence little changed

ZAR: Whacked by Eskom bailout costs

ZAR: Whacked by Eskom bailout costs

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