Brexit deal is possible – Barnier
Jon Cunliffe, The Bank of England’s Deputy Governor, stated that the economic outlook is weaker than forecasted 12 months ago and reiterated that gradual and limited rate increases were likely over the medium term but that rates could move in either direction in the event of a no-deal Brexit. The Queen’s Speech had little currency impact as the markets assumed it wouldn’t get the chance to be implemented. After Sterling’s meteoric rise last week there was a vulnerability to a technical correction and/or profit taking and market confidence of a Brexit deal this week was curbed by further cautious comments from EU officials. Antti Rinne, the Finnish PM stated there was not enough time to conclude a deal at this week’s Summit and a further Summit may be needed.
The Pound was pushed down to the 1.1363 area on the Euro but found support above 1.2500 against the Dollar. Sterling pushed higher overnight amid media reports of cautious optimism over EU talks; back above 1.2600 against the Dollar and the Euro retreated to 1.1441 with further volatility inevitable.
Today’s market focus will be on comments from EU Chief Negotiator Barnier and the UK labour-market data release this morning.
US Dollar activity was stifled by the Columbus Day holiday while a leaked release indicated a small recovery in the October New York Empire index. Components were mixed as unfilled orders and employment declined while confidence improved slightly.
US President Trump imposed sanctions on Turkey for its military advances into Syria. The administration sanctioned three Turkish officials and increased steel tariffs to 50%
Overall narrow ranges prevailed with the Euro settling around 1.1025 against the Euro. Rhetoric from Federal Reserve (Fed) officials will be monitored closely with futures markets still indicating over a 70% chance of a further rate cut at the October meeting. If the central bank wants to shift expectations then the Fed will need to act this week before the blackout period comes into effect on Saturday.
A recommenced bout of selling pressure around the common currency is now dragging the Euro to fresh daily lows to the 1.10 region against the Dollar. The pair have quickly faded the earlier spike towards the 1.1060 and is now focusing instead on the lower end of the weekly range near 1.10. The sudden reaction in spot comes in response to the continuation of the correction higher amidst steady US yields and some fresh enthusiasm from the US-China trade front.
On the docket, the Euro will be under further scrutiny in light of the release of the German Economic Sentiment tracked by the ZEW survey this morning. As of writing the Euro is currently trading at 1.1020 against the Dollar.
Data to watch
09.30 GBP – Gov Carney Speaks
09.30 GBP – Average Earnings Index
10.00 EUR – German ZEW Economic Sentiment