Bitter campaign leaves little upside for Sterling
A lack of Sterling drivers and a subdued atmosphere meant the Pound failed to make progress. The Conservative election campaign struggled yet again which served to illustrate the outcome is uncertain and the markets feel that the Pound would drop if the polls showed the Labour Party gaining. The Pound ebbed toward 1.2850 against the Dollar and was held at 1.1630 against the Euro.
The market strongly expects the Bank of England will hold interest rates at 0.75% today but there is the risk that the inflation report will rein in growth expectations. Given the election campaign any additional commentary is likely to be restrained. Risk appetite is weaker this morning and Sterling has drifted lower after the bell.
Chicago Federal Reserve (Fed) President Evans stated that the central bank has accomplished an accommodative stance with the third rate cut and that policy is not far from neutral. He reiterated that 2% inflation was an asymmetric target and not a ceiling. New York head Williams stated that the Fed would be data-dependent and pre-emptive moving forward. He also voiced concerns over the risks of low inflation, maintaining the slightly more dovish stance seen by Fed officials on inflation developments. The overall Fed stance could have a significant medium-term dollar impact.
The dollar was, however, able to maintain support during the day with the Euro settling around 1.1070. The US currency gained some support from a more defensive risk tone with gains by default as European and commodity currencies faltered.
The final Euro-zone PMI services sector reading was revised up to 52.2 from the flash reading of 51.8 and above the September figure of 51.6. The composite output index recorded marginal growth at 50.6, but Germany overall remained in contraction territory despite an upward revision. Euro-zone retail sales increased 3.1% in the year to September from 2.7% previously. The data overall provided an element of Euro support amid hopes that the Euro-zone would be able to secure a tentative recovery, especially after an increase in German factory orders, but the currency failed to make any significant headway.
On the docket today, we have EU Economic Forecast due for release later this morning. As of writing, the Euro is currently trading at 1.1067 against the Dollar.
Data to watch
10:00 – EUR – EU Economic Forecast
12:00 – GBP – BOE Monetary Policy Report
12:00 – GBP – MPC Official Bank Rate Votes
12:00 – GBP – Monetary Policy Summary
12:00 – GBP – Official Bank Rate
12:30 – GBP – BOE Gov Carney Speaks
18:00 – USD – 30-y Bond Auction