Down to the wire
UK retail sales remained flat in September as forecast, but the annual figure increased to 3.1% from 2.6% previously. Sterling spiked higher yet again on the announcement that the UK & EU had agreed a new Brexit deal. The Pound hit fresh 5-month highs, just shy of 1.3000 against a soft Dollar and circa 1.1630 on the Euro. The gains vaporised almost as quickly when the DUP party stated that they would not back the deal and the markets priced in a significant risk that the revised deal would not be approved in Saturday’s parliamentary vote. The European Council approved the deal but it’s fair to say the domestic reception was very mixed generating major uncertainty over potential parliamentary developments.
After sliding back to near 1.2750, the Pound rose again to near 1.2850 on the Dollar and 1.1560 on the Euro. Do have the aspirin handy as it’s set to be another volatile trading day, especially with position adjustment ahead of crucial weekend events. If parliament approves the deal on Saturday, Sterling will rise across the board but rejection of the deal will sink the Pound; reversing the last weeks gains at the very least.
The greenback is trading with a softer tone against a basket of major currencies with the DXY Index down 0.2%.
The Philly Fed manufacturing index was mixed with the headline number declining 6 points to 5.6 for the month of October. US housing starts came below market estimates whilst unemployment claims recorded a slight increase.
There is little in terms of hard economic data on the slate yesterday, and hence, we expect the currency market to move into consolidation mode.
The Euro is currently trading just below the 1.1130 figure against the Dollar, having shot up around 50 pips yesterday on the news that the UK and European Union’s negotiating teams had reached a Brexit withdrawal agreement. The rally, however, stalled somewhat in the overnight trade due to fears the agreement could possibly be rejected by the UK parliament.
Prime Minister Johnson will face a deeply divided parliament on Saturday, where the opposition will try to delay the deal as much as they can alongside calling for another referendum. Further, Johnson’s Brexit agreement has already been rejected by their Northern Irish ally, the Democratic Unionist Party. Quite simply, the odds of the UK parliament approving the latest Brexit deal seem low. The uncertainty will likely keep the Euro below the 1.1130/40 figure.
The European data calendar is light as we continue with the 2nd day of the European Economic Summit along with Current Account data being released with the latter very seldomly moving the market
Data to watch
18.45 GBP – Gov Carney Speaks