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All that glitters…certainly isn’t Sterling

All that glitters…certainly isn’t Sterling

Sterling had a torrid time yesterday afternoon, plummeting 2 cents to 1.2090 against the Dollar and 1.094 against the Euro. After four days of losses, the Pound’s trade-weighted index fell again, this time to its lowest level since 1990.

In a Treasury Select Committee testimony, Bank of England MPC member Saunders stated that it would be possible to cut interest rates to near zero, but not below. He commented that he would not be surprised if Sterling fell further and that there would be scope for the bank to overlook the impact on inflation rates, possibly for years, if there was a sharp slowdown in the economy. The commentary overall increased speculation that the bank would err on the side of cutting interest rates, further undermining Sterling support.

Relief finally arrived yesterday evening after reports that Prime Minister May would allow a parliamentary vote on the EU exit terms, increasing speculation that the government would have to steer away from a ‘hard Brexit’. Sterling has managed to pull back against the Dollar, to 1.2300 and 1.1150 against the Euro.

In the US, the NFIB small business confidence index fell slightly to 94.1 for September from 94.4 previously, although there was further evidence of tightening labour market conditions. The Labour Market Conditions Index fell 2.2 in September following a revised decline of 1.3 for August, the seventh drop this year.

The Dollar didn’t suffer from the mediocre data as markets expect a hawkish set of Fed minutes to be released today. Recent Dollar support has been founded on expectations of a Clinton victory in November and subsequent Fed tightening.

German ZEW business confidence data showed at a four-month high for October, although European Central Bank officials continued to promote the benefits and necessity of continued monetary support.

Data to watch: 10am UK MPC Member Cunliffe speaks. EUR August Industrial Production. 7pm US Fed Open Market Committee minutes.

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