Brexit treaty support key to Pound fortunes
The Bank of England’s Deputy Governor Ben Broadbent stated that fourth-quarter GDP figures were likely to show slower growth although wage growth is materially higher and there are signs of domestic inflationary pressures now. He added that gradual rate increases did not necessarily mean one hike per year and that he saw an orderly Brexit outcome as the likely outcome.
The Pound remained under pressure throughout the day with further opposition to Theresa May’s Brexit plan. UK government bonds also declined sharply which undermined Sterling support. EU Council President Donald Tusk stated that a deal needed to be in place by Wednesday night in order to arrange a Brexit summit in November. By early afternoon, reports surfaced that Michel Barnier had said that the Brexit Treaty was almost ready and that the UK Cabinet would see a draft today. Although the Pound spiked higher initially, selling quickly resumed after doubts that the Cabinet would approve of the offer. Sterling dipped to 1.2850 against the Dollar before a slight correction when Theresa May stated that “negotiations were in the end game”. The Euro settled near 1.1450 with both currencies suffering from Brexit concerns.
This morning the UK unemployment rate is expected to remain unchanged at 4.0%, while wages including bonuses are forecast to print 3.0%. Failing to meet consensus could exacerbate the Pound’s decline.
The Greenback continued to be among the strongest currencies, supported by Federal Reserve (Fed) rate hike expectations and the negative sentiment around financial markets. Yesterday, the Dollar index (which tracks the Dollar against a basket of its main competitor currencies) rose to the highest level in 17 months, above 97.30.
WTI crude oil dropped over 1% yesterday and was being weighed down by reports that the US President Donald Trump asked the OPEC not to cut supply to drive up prices, of course, via a tweet. Adding to this, deteriorating market appetite for riskier assets, led by fears of a global economic slowdown, could further benefit the Greenback’s safe-haven status.
Across the pond today we see Fed members Daly and Brainard speak as well as the monthly budget statement for October.
The Euro remained under pressure yesterday as sentiment was further eroded by a slip below 1.1300 against the Dollar. EU Commission President Juncker repeated criticisms of the Italian government’s position as today’s deadline for resubmission of its draft budget loomed. If Italy fails to respond, the EU could open an excessive deficit procedure which would intensify domestic political tensions.
Fresh concerns surrounding the Italian banking sector also emerged, undermining Euro sentiment. Underlying Brexit concerns and weak sentiment towards European currencies meant the Euro slipped below 1.1250 on the Dollar, recovering only slightly this morning as Dollar demand faded slightly. Reports that the Italian government might offer concessions to the EU curbed immediate Euro selling.
Data to Watch:
07:00 EUR Harmonized Index of Consumer Prices (MoM) (Oct) (Germany)
08:00 EUR ECB’s Praet Speech
09:30 GBP Average Earnings including Bonus (3Mo/Yr) (Sep)
09:30 GBP ILO Unemployment Rate (3M) (Sep)
09:30 GBP Average Earnings excluding Bonus (3Mo/Yr) (Sep)
09:30 GBP Claimant Count Change (Oct)
10:00 EUR ZEW Survey – Current Situation (Nov)
10:00 EUR ZEW Survey – Economic Sentiment (Nov)
15:00 USD FOMC Member Brainard Speech
19:00 USD Monthly Budget Statement (Oct)
22:00 USD FOMC Member Daly speech
23:30 AUD Westpac Consumer Confidence (Nov)
23:50 JPY Gross Domestic Product (QoQ) (Q3)
23:50 JPY Gross Domestic Product Annualized (Q3)