Gains consolidated but dependent on EU Summit result
Wednesday started well for the Pound with initial gains on further rumours that negotiators were close to reaching a Brexit deal. The recent gains did provide an opportunity for a correction and retreat from 1.3175 on the Dollar and a key technical level of 1.1467 against the Euro gave rise to profit taking on long Sterling positions (bets on a Sterling rise).
Michel Barnier stated that negotiations remained intensive and that there could be no deal without an Irish backstop. Further reports suggested that a breakthrough was needed by early next week in order for a November Brexit Summit. Late in the day, it was suggested that the Cabinet would likely meet early next week after Ministers saw the draft withdrawal agreement text.
Overall Sterling sentiment held firm with short covering (buying Sterling to close bets against the Pound) still supporting the Pound. The Euro fell again, closing at 1.1494, a level not seen for four months. RICS house prices recorded the weakest reading for six years due to uncertainty, especially in the London market, but markets remained focussed on politics and Sterling drifted towards 1.3100 amid a wider Dollar recovery.
The Dollar continued to lose ground yesterday with Democratic control of the House of Representatives seen as a negative for the Greenback given that there will be reduced potential for further fiscal stimulus. Due to this, there could also be reduced pressure on the Federal Reserve (Fed) to tighten monetary policy more aggressively next year.
There are no expectations that the Fed will hike rates again at today’s policy meeting, but markets will still be monitoring the statement closely for any hints on future policy. There are strong expectations that the Fed will increase rates again at the December meeting.
The FOMC meeting will be the salient event later today, although the market expects to move based on any interest rate change or a significant announcement from the Committee.
Yesterday saw the Euro fluctuate fairly significantly due to feelings around the US midterms and what this may mean for currencies. Many feel that the Democrats winning the House, combined with the Republicans winning the Senate, will mean that there will be gridlock and therefore an end to fiscal stimulus. Against the Dollar, the Euro hit the 1.1500 mark before retreating to just below the 1.1450 mark.
Italy’s government won a vote of confidence on security policies which helped rally bonds and German yields increased which helped boost the Euro early on. Eurozone retail sales data and German industrial production came in with consensus forecasts so there were no shocks there.
Weaker-than-expected trade data out of Germany has seen the Euro fall slightly on Thursday morning ahead of an EU Economic bulletin, EU growth forecasts and European Central Bank (ECB) President Draghi’s speech later this afternoon which will be closely monitored.
Data to Watch:
09:00 EUR Economic Bulletin
n/a EUR European Commission Releases Economic Growth Forecasts
13:15 CAD Housing Starts s.a (YoY) (Oct)
14:15 EUR ECB Cœuré Speech
15:20 EUR ECB President Draghi’s Speech
17:30 CHF SNB Gov Board Member Maechler Speech
19:00 USD Fed’s Monetary Policy Statement
19:00 USD Fed Interest Rate Decision