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Brexit deadlock remains

Brexit deadlock remains


UK headline CPI inflation held at 1.7% compared with forecasts of a rise to 1.8% but the core inflation rate met forecasts in rising to 1.7% from 1.5%. The Pound did dip a little lower afterward but the reaction was limited as markets focused on political developments. Sterling spiked again following Michel Barnier’s comments that a deal was possible on Wednesday and climbed higher again as confidence in a deal increased. Volatility remained high, especially as hopes of a quick deal could be dashed in the parliamentary process. The Ulster Unionists opinion remained crucial and but uncertain. 

After the European close, reports indicated that nearly all issues had been resolved, and Sterling peaked near 1.2870 before UK government stated that no deal would be reached that evening and the Pound retreated. This morning reports are that the deal text is ready but also that the DUP wouldn’t give their support, and Sterling dipped below 1.2800 again. The EU Summit begins today, volatility will remain high despite there being little chance of a deal today.


US retail sales declined 0.3% for September compared consensus forecasts of a 0.3% increase, although there was an upward revision for August. Core sales declined slightly while the control group was unchanged on the month. The data had some impact in dampening dollar confidence as it drifted lower. There was a shift in futures markets following the data with the chances of an October rate cut seen at over 85% which also limited dollar support.

The Fed’s Beige Book reported that the economy grew at a slight to modest pace with manufacturing activity continuing to edge lower. The labour market overall remained tight with upward pressure on wages.




The final Euro-zone headline inflation reading was revised down to 0.8% from 0.9% in the flash reading and close to 3 year lows which maintained expectations of a dovish ECB stance, although the underlying rate was confirmed at 1.0%. 

Political developments also had a substantial impact with Brexit developments watched closely. The Euro was boosted by optimism that a deal was within reach with a break above 1.1050 against the Dollar being a significant factor but as of yet are still struggling to announce a final deal. German yields also increased with yield spreads moving in favour of the Euro as it pushed to around 1-month highs around 1.1080. Brexit talks continue today before the EU hold their two-day summit. 

As of writing the Euro has jumped up to the 1.1070 against the Dollar. 



Data to watch

09.30 GBP – Retail Sales

13.30 USD – Philly Fed Manufacturing Index

16.00 USD – Crude Oil Inventories 

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