China is stumbling into this weekend’s G20 meeting of Finance Ministers and Central Bank governors, with stocks down more than 6% overnight, money market rates rising and the currency weakening further. The IMF has called for further action to support growth, which has disappointed on many fronts so far this year. There is also an underlying risk that the US economy grinds to a complete halt in the first quarter. Talking of growth, we have the second estimate of UK GDP at 09:30 GMT today. For sterling, it’s not been about the economy recently and all about Brexit, so this data will probably not change the bearish tone on the pound unless we see some major deviation from the provisional estimate (low probability of that). The risk of a short squeeze on sterling is naturally rising as the currency moves ever lower, but as always this could require some sort of trigger. For sure, the Brexit referendum continues to create a bearish backdrop, but in the world of currencies nothing moves in a straight line forever.
Other distractions today includes money supply data from the ECB at 09:00 GMT, together with inflation data at 10:00 GMT, where the final numbers are seen steady at 0.4% YoY on the headline rate, with core inflation holding at 1.0%. For currencies, the underlying drivers remain mixed, with the safe havens (principally the CHF and JPY) finding the path of least resistance higher, even though we saw some softening yesterday and overnight. As we mentioned yesterday, currencies could well be a talking point behind the scenes, but market should be aware of the risks that some of these strains could be seen at the surface.