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Dollar down but certainly not out

Dollar down but certainly not out

Sterling maintained a generally firm tone against the Dollar and advanced versus the Euro yesterday. With further fundamental support from Wednesday’s labour market report and, in global terms, markets expecting the UK to out-perform, it could result in the Bank of England (BoE) moving into policy tightening mode before other central banks if this is the case.

Political concerns are high on the agenda as talks intensify on the EU referendum with David Cameron, the UK Prime Minister, set to present his demands at some point in November. The polls are showing that there could be a Brexit, and a hostile tone in EU talks could have serious Sterling implications.

Yesterday, we were reminded by the European Central Bank’s (ECB) Nowotny that the central bank was clearly missing its inflation target, bringing to the fore expectations of further quantitative easing from the ECB. Since Tuesday’s 1.33505 low the Euro has ebbed to 1.36087. We’ve seen the final print of CPI data in the Eurozone today, with confirmation of -0.1% year-on-year reading.

Key data from the US yesterday in the form of core inflation figures added more uncertainty as to what will unfold with regards to monetary policy Stateside – particularly when considering the growth prospects of the nation.

The core consumer price index declined by 0.2% in September which was a clear reflection in the decline in energy prices in the US, although beyond energy, consumer prices generally picked up which is adding to the mixed signal. Conversely, employment data in the US impressed with unemployment benefits dropping to the lowest level in four decades. As we further entered the New York trading session, the Greenback was able to claw back some of the losses from earlier in the day.

Data to watch: 10am Euro Consumer Price Index, 2.15pm US Industrial Production and Capacity Utilisation, 3pm US Consumer Sentiment Index.

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