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Brextension

Brextension

GBP
Headline UK CPI inflation fell to 2.4% in September, below a forecast of 2.6% and well below August’s 2.7% print. Cheaper food and drink prices also hit core CPI data that fell to 1.9% from 2.1% previously. The Pound fell against its peers following the data but managed to hold the 1.1365 level against the Euro. Jon Cunliffe, Deputy Governor of the Bank of England, stated inflation pressures are strengthening but not by enough to meet the Bank’s inflation target and the Dollar capitalised. Ahead of the European Council meeting, positive rhetoric gave some protection to Sterling.

Theresa May’s presentation didn’t sway European Parliament President Antonio Tajani and he stated there was nothing new to consider. EU leaders ditched plans for a November Summit to sign off on Brexit but Chief Negotiator Michel Barnier would convince them if decisive progress had been made. The EU has offered to extend the transition period by 12 months, which could ease pressure on negotiations, but UK political tensions rose and Sterling lost ground overall.

The Pound failed to regain ground this morning and it opens at 1.1390 against the Euro and 1.3085 against the Dollar. This morning sees the release of UK retail sales data that is forecast to dip month-on-month but rise to 3.6% year-on-year.

USD

Positive earnings results fueled the best day on Wall Street in eight months, which in turn lifted the US Dollar. Federal Reserve (Fed) meeting minutes from September indicate further interest rate increases are to be expected. President Trump has been critical of the Fed lately and said higher rates are the biggest threat to economic recovery.

US construction data was below consensus forecasts with September housing starts declining to an annual rate of 1.20mn from 1.27mn with building permits at 1.24mn from 1.25mn which maintained an element of unease over underlying trends. The aforementioned minutes from September’s meeting stated that almost all policymakers considered it appropriate to remove references to the policy being accommodative. The committee saw little change in the economic outlook, although a few considered that recent data pointed to stronger growth.

Today in the US, we see the Philadelphia Fed Manufacturing Survey.

EUR

Eurozone CPI numbers came out on consensus yesterday which proved to be little help to the slide versus the Dollar. Continued bickering between Italy and the EU over the budget proposals also undermined the single currency and the pair slid to below the 1.1530 level. Italian and German bonds moved lower which provided support to the Dollar.

The neutral results from economic data extended Euro losses against the Dollar and this continued into Tuesday’s early session with the pair trading at the 1.1500 mark.

Today sees Retail Sales out of the UK, Spanish and French bond auctions and, more importantly, the Brexit Summit. All eyes are on the Summit, with yesterday not really providing any further clarity. Market feeling is that this will continue to rumble on, creating more and more uncertainty.

Data to Watch:

24h EUR EU Brexit Summit
24h EUR EcoFin Meeting
08:30 GBP Retail Sales (YoY) (Sep)
08:30 GBP Retail Sales (MoM) (Sep)
08:30 GBP Retail Sales ex-Fuel (MoM) (Sep)
08:30 GBP Retail Sales ex-Fuel (YoY) (Sep)
12:30 USD Philadelphia Fed Manufacturing Survey (Oct)

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