EU Pushing To Agree Deal
Sterling rose at the start of the European session yesterday with market expectations that a fresh attempt to secure a fresh breakthrough and salvage a trade deal with the EU. The firm tone in risk appetite was also significant in underpinning Sterling demand, although selling interest was found above the 1.3000 against the Dollar.
Further dialogue between EU Chief Negotiator Barnier and UK counterpart David Frost confirmed the EU were willing to intensify talks. Subsequently, the UK government reiterated that there was no basis for continuing at this stage, but the two sides would keep in close contact. Sterling then dipped again in choppy trading.
Markets overall looked through the rhetoric and assumed that some form of trade deal would eventually be agreed upon, but confidence still remains fragile with fears over the economic recovery an added important factor. Sterling then faded to below 1.2950 against the Dollar and to 1.0995 against the Euro.
The NAHB housing index strengthened to 85 for October compared with expectations of no change from September’s reading of 83. The extremely low level of interest rates in the US has continued to underpin the housing sector despite unease over labour-market trends.
Atlanta Federal Reserve (Fed) President Bostic stated that widespread and permanent job losses pose a risk to the economy. Vice-Chair Clarida stated that output would not recover to 2019 levels for at least another year and that it would take even longer than that for unemployment to fall to a level consistent with the maximum employment mandate.
The dollar overall was unable to gain significant traction, but commodity currencies lost some ground as equity markets retreated. As Wall Street indices moved lower, the Euro failed to gain ground, although ranges were narrow and the currency was resilient.
The Euro caught some fresh bids on the first day of a new trading week and rallied just short of the 1.18 area amid a broad-based US Dollar weakness on expectations of further fiscal stimulus.
ECB member Holzmann stated that currently, there is no need for further monetary easing but more action may be taken if the crisis intensifies. Markets overall expected that there would be further measures by the central bank before the end of 2020 but despite expectations of a dovish ECB stance, the Euro gained ground ahead of the US open.
As of writing, the Euro is currently trading around 1.1765 mark against its US counterpart.