Brexit positivity overshadows Bank of England
The Pound started yesterday with an “oversold” sentiment which meant the 1.2700 mark against the Dollar wasn’t threatened, and initially made limited gains. UK Brexit Secretary Dominic Raab commented that he expects a Brexit deal to be agreed by November 21st which triggered a brief Sterling spike higher before Downing Street played-down the specific timeframe. Comments from EU sources on a more positive mood in Brexit talks contributed to a few Sterling rallies but they petered out as they hit selling interest. The Pound failed to hold above 1.2800 against the Dollar and the Euro also regained some ground.
Overnight, Sterling rose sharply following reports that Theresa May had secured a deal for UK financial services companies to retain access to EU markets after Brexit. Given the significance of financial services to the UK economy, the Pound made strong gains, pushing above 1.2850 against the Dollar and near 1.1337 against the Euro. The market has very low expectations that the Bank of England will change interest rates today, but the statement will still be analysed for clues for any future moves.
The US labour-market data remained strong with ADP reporting an increase of 227,000 in private sector jobs for October compared with consensus forecasts of 190,000, although there was a limited downward revision to September’s data. The third-quarter employment cost index increased 0.8% after a 0.6% gain previously and above consensus forecasts of 0.7%. The Chicago PMI index declined slightly to 58.4 for October from 60.4 previously, although employment data dominated market sentiment with the US currency gaining fresh support on optimism surrounding growth.
Despite a brief dip around the London fix, the Dollar pushed to fresh 16-month highs and posted a seventh successive monthly gain as the Euro dipped to test the key 1.1300 level.
We look forward to the US economic docket, highlighting the release of ISM manufacturing PMI for some fresh impetus as well as the monthly jobs reports from the US, which will play an important role in determining today’s movements.
European Central Bank (ECB) member Nowotny reported that there is likely to be a downward revision to the economic outlook of the EU but that the quantitative easing programme is still on course to finish at the end of the year. Euro sentiment remained weak and the continued selling pressure continued towards the 1.1300 level versus a strong Dollar.
Better-than-expected Eurozone inflation figures gave the currency a small boost, with headline CPI at 2.2% and core CPI at 1.1%. However, continued nervousness around underlying political tensions and strong US labour-market data halted this brief rally. Thursday morning saw the Euro pick back up to the 1.1350 level after a strong Asian trading session.
There was also an agreement that the UK has struck a deal with the EU on post-Brexit financial services which has seen both the Euro and the Pound rally strongly. Data today includes Swiss CPI numbers but more importantly the Bank of England’s interest rate decision at midday followed by Governor Carney’s speech half an hour later.
Data to Watch:
06:45 CHF SECO Consumer Climate (3m) (Q4)
08:15 CHF Consumer Price Index (YoY) (Oct)
09:30 GBP Markit Manufacturing PMI (Oct)
12:00 GBP BoE Interest Rate Decision
12:00 GBP BoE Asset Purchase Facility
12:00 GBP Monetary Policy Summary
12:00 GBP Bank of England Quarterly Inflation Report
12:00 GBP BOE MPC Vote Unchanged
12:00 GBP BOE MPC Vote Hike
12:00 GBP Bank of England Minutes
12:00 GBP BOE MPC Vote Cut
12:30 USD Nonfarm Productivity (Q3)
12:30 USD Unit Labor Costs (Q3)
12:30 GBP BOE’s Governor Carney speech
13:30 CAD Markit Manufacturing PMI (Oct)
14:00 USD ISM Prices Paid (Oct)
14:00 USD ISM Manufacturing PMI (Oct)