Late morning trading culminated with UK government sources suggesting Angela Merkel had torpedoed the prospect of a near-term Brexit deal by insisting Northern Ireland needed to stay in the EU Customs Union. Despite there being no transcript of the talks with Boris Johnson, the antagonistic rhetoric meant markets priced in the lack of prospective deal arriving this week. Speculation rose surrounding government attempts to avoid a Brexit extension and Cabinet rift opening again.
Sterling dipped sharply to test the 1.2200 mark against the Dollar and the Euro pushed to highs of 1.1111 before hovering nearby. Political rhetoric will continue to be key as Boris Johnson meets Irish PM Leo Varadkar later in the week. Sterling volatility is inevitable and underlying confidence in Sterling is weak.
The US NFIB small-business confidence index declined to 101.8 for September from 103.1 the previous month and below market expectations with companies citing increased uncertainty as curbing investment and hiring intentions. Producer prices declined 0.3% for September compared with consensus forecasts of a marginal increase with the year on year rate declining to 1.4% from 1.8%. The core rate also declined to 2.0% from 2.3% which hampered the dollar.
Chicago Fed President Evans stated that he was still optimistic over the economic outlook, although downside risks were stronger than upside risks and he would not mind a further rate cut. Chair Powell stated that global developments pose risk to the favourable US outlook. He reiterated that the outlook will be assessed on a meeting by meeting basis and that policy is not on a pre-set course. Powell also stated that the Fed would announce measures to add reserves over time through expanding the balance sheet, but insisted that this should not be confused with quantitative easing. The Dollar edged lower following Powell’s comments, although moves were limited, especially with no mention of a further rate cut at the October meeting.
The Euro is currently trading at 1.0975, representing marginal gains yesterday. The positive tone around the Dollar weakened, allowing a bounce at support around the 1.0947 figure due to comments by Fed Chair Powell that the central bank’s balance sheet, which it had been shrinking until August, will soon expand again.
The Euro will again, likely find acceptance above stiff resistance of 1.0965 if the Fed minutes show growing consensus among policymakers on the need for further easing. As of writing the common currency against the Dollar is trading at 1.0980
Data to watch
15.30 USD - Crude Oil Inventories
16.00 USD - Fed Chair Powell Speaks
19.00 USD - FOMC Meeting Minutes
Posted in Daily Market News on Oct 9 2019