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ECB interest rate decision should be…interesting

ECB interest rate decision should be…interesting

GBP
Sterling was unable to make any headway in European trading yesterday and gradually drifted weaker amid underlying negative sentiment.

EU Council President Donald Tusk stated that Conservative Party Brexiteers were responsible for the Irish border problem. There were similar remarks from Irish Prime Minister Varadkar which suggested that there may be a concerted effort to isolate opposition within the UK and increase the potential for a UK-EU deal in parliament.

Sterling dipped only slightly against a vulnerable Euro whilst there was a decline to six-week lows below 1.2900 against the Dollar with weaker oil prices also contributing to the negative tone.

There were indications that Prime Minister May received widespread support in the 1922 Committee meeting which stabilised sentiment to some extent, but Sterling was unable to secure a significant recovery and held close to 1.2900 amid a lack of positive Brexit news.

There isn’t any important UK economic data due for release today and hence, the incoming Brexit headlines might continue to influence the Pound’s price dynamics.

USD

The US PMI manufacturing index increased slightly to 55.9 for October from 55.6 previously and there was a stronger increase in the services index to 54.7 from 53.5 previously. Both pieces of data beat consensus forecasts and there was further upward pressure on prices as capacity constraints continued to intensify. In contrast, new home sales data was notably below consensus forecasts with an annual rate of 553,000 from 585,000 previously, the slowest rate for 18 months. The US housing data triggered fresh concerns over the outlook and could curb Federal Reserve (Fed) rate hikes in 2019.

The Dollar still maintained a firm overall tone amid doubts surrounding the Eurozone outlook and the EURUSD rate dipped back below 1.1400 as Italian bonds declined.

From the US, the release of monthly durable goods orders and pending home sales data will be looked upon for some short-term trading impetus later.

EUR

Weaker-than-expected Eurozone flash PMI prints caused the Euro to slide to a two-month low versus the Dollar at 1.1400, with the number coming in at 52.7 from 53.2 previously. Dollar demand compounded this effect meaning the pair was at its lowest level since 17th August. A slowdown within the services sector meant it hit a 25-month low.

The Italian government is still refusing to concede any ground over the 2019 budget deficit meaning they are on a collision course with the EU and their fiscal rules. This is creating some market uncertainty which is putting continued pressure on the currency. Some positive news is that the European Central Bank (ECB) is expected to stick to its plan of reducing its bond-buying program and not touching interest rates.

Data today includes German business climate numbers and then at lunchtime the ECB’s interest rate decision and its monetary policy decision.

Data to Watch:

11:45 EUR ECB Interest Rate Decision
11:45 EUR ECB Deposit Rate Decision
12:30 EUR ECB Monetary policy statement and press conference
12:30 USD Durable Goods Orders ex Transportation (Sep)
12:30 USD Durable Goods Orders (Sep)
14:00 USD Pending Home Sales (MoM) (Sep)

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