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Boris is confident

Boris is confident

GBP

Reports emerged on Friday that there had been progress on Brexit talks, supported by positive rhetoric from EU diplomats and Prime Minister Johnson stated that deal blueprint could now be seen. Political hopes shored up the Pound and a stronger global risk appetite also helped. Sterling pushed to highs of around 1.2500 on the Dollar and the Euro dipped to lows near 1.1300 not seen in 3 months. 

Futures market data revealed a fresh increase in bets against the Pound, near 2-year highs which maintains the potential for short covering if political sentiment improves. Prime Minister Johnson is set to meet the EU’s Jean-Claude Juncker today and political rhetoric will be scrutinised. The Pound dipped into the open this morning with oil and global risk conditions also key considerations. Sterling opened at 1.2475 on the Dollar and 1.1255 on the Euro ahead of another choppy trading day.

 

USD

US retail sales increased 0.4% for August, above consensus forecasts of 0.2% and the control group recorded a monthly increase of 0.3%, although underlying sales were unchanged and marginally below market expectations. The September University of Michigan consumer confidence index strengthened to 92.0 from 89.8 previously with current conditions and expectations both firmer on the month. 

The 5-year inflation expectations index declined to 2.3% from 2.6% which will be monitored by the Federal Reserve (Fed) given its focus on inflation expectations. Markets continued to price in a 0.25% cut at this week’s Fed meeting, although futures markets indicated a 20% chance that there would not be a cut and expectations of no further cuts in the fourth quarter increased to above 40% which provided an element of dollar support. 

 

EUR

The Euro has started the week on a neutral stance against the Dollar, currentlyhovering around Friday’s close in the 1.1075 region. The pair, bouncing between 1.1065 to 1.1105 after hitting monthly highs, just above the 1.11 figure in the latter part of last weeks trading session.

During Friday, there was criticism from ECB’s Klaas Knot regarding the central banks policy easing stance stating that the restarting of bond purchases ‘was not in line with economic circumstances’ while Bundesbank head Jens Weidmann stated that ‘the bank went overboard with the latest package’. German yields moved higher, although there was no net narrowing of yield spreads as US rates also moved sharply higher and the Euro was unable to gain any significant traction.

In the meantime, and while market participants continue to adjust to the recently announced package of monetary stimulus by the ECB, the attention will shift to the FOMC gathering on Wednesday, where another 25 bps rate cut is almost fully priced in. 

 

 

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