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Budget, Bank of England and Brexit

Budget, Bank of England and Brexit

GBP
A fragile risk appetite prevented Sterling gaining ground on its peers on Friday, despite rating agency Fitch holding its UK credit rating at AA. Fitch again reported the UK outlook as negative, although it warned that Brexit risks had increased. A recovery in oil prices late in the day also failed to increase Sterling sentiment as markets remain uneasy with Brexit negotiations still seen as being on hold, further undermining confidence. The Euro advanced to highs near 1.1235, although Sterling held above the 1.2800 mark against the Dollar.

CFTC data recorded bets against the Pound had declined modestly, but there was still a substantial net short position, maintaining the potential for a significant reversal if there if sentiment improves.

Chancellor Hammond’s budget announcement today will be scrutinised by the markets for clues as to whether there is a change in Brexit tone and also clues on Thursday’s Bank of England policy meeting. Following the release, the market can focus again on negotiations with the EU and Conservative Party tensions. Sterling is marginally up against the Euro this morning at 1.1246 and the Dollar at 1.2833.

USD

The Dollar started trading on Friday with a push below 1.1350 against the Euro. US preliminary GDP for Q3 printed 3.5% growth, beating forecasts of 3.3%. Personal Consumption Expenditure and Core PCE both printed at 1.6%, a miss on both forecasts. The data mix triggered some reservations surrounding the medium-term outlook and US fundamentals which limited Dollar support. CFTC data recorded a decline in bets on a Dollar gain, to four-week lows, although the market’s net position still indicates a consensus that the Dollar will rise.

EUR

On Friday, versus the Dollar, the Euro hit 1.1335 and closed on the 1.1400 mark. Eurozone PMI data last week came in below consensus meaning there was a re-pricing of futures markets. The markets were pricing in a 50% chance of an interest rate hike of 10 basis-points which put downward pressure on the Euro.

Angela Merkel had a tough weekend as the German CDU continued to suffer heavy losses in the regional elections, leading to uncertainty of the political situation in Germany. There were also reports that senior EU officials supported the rejection of Italy’s draft budget which only added to the uncertainty.

European data today is minimal, with the European Commission releasing economic growth forecasts.

Data to Watch:

n/a GBP Budget Report
04:20 AUD HIA New Home Sales (MoM) (Sep)
09:30 GBP Mortgage Approvals (Sep)
n/a EUR European Commission Releases Economic Growth Forecasts
12:30 USD Core Personal Consumption Expenditure – Price Index (MoM) (Sep)
12:30 USD Personal Consumption Expenditures – Price Index (YoY) (Sep)
12:30 USD Personal Income (MoM) (Sep)
12:30 USD Personal Spending (Sep)
12:30 USD Personal Consumption Expenditures – Price Index (MoM) (Sep)
12:30 USD Core Personal Consumption Expenditure – Price Index (YoY) (Sep)
23:30 JPY Unemployment Rate (Sep)
23:30 JPY Jobs/applicants ratio (Sep)

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