Headlines threaten 1.3000 mark
UK GDP for Q2 printed in line with previous estimates at 0.4%, but the Q1 figure was revised down and the annual GDP growth fell just short of consensus forecasts at 1.2%. The current account figures showed the deficit was wider than forecast.
Dave Ramsden, Deputy Governor of the Bank of England, stated he saw signs of labour market tightening and that pay pressure was rising in line with the BoE’s August forecast. There were also comments that money market analysis suggested investors were insuring against downside Brexit outcomes. The Pound was susceptible to month-end pressures and political risk with Conservative Party conference starting on Sunday. Sterling closed just above 1.1235, benefitting from underlying Euro vulnerability, but dipped to near 1.3000 on the Dollar before a modest recovery.
CFTC data revealed a small decline in bets against Sterling, but the potential for a big reversal remains should sentiment shift. Sterling opens much where we left it, the effect of strong oil prices currently being offset by headline and political risk generated by the Tory Party Conference.
Friday, which was the final trading day of the month and the end of Q3, saw the US Dollar trading higher than other G-10 currencies except for the Canadian Dollar.
The Greenback continued to derive support from strong incoming data and a hawkish Federal Reserve (FED) on the back of a rate hike last week.
US personal income and spending data were close to market expectations. The core PCE prices index was unchanged for August, below consensus forecasts of a 0.1% gain, although the year-on-year rate met consensus forecasts of 2.0%. The Chicago PMI index declined to 60.4 from 63.6 previously and below consensus forecasts with data hampering the US dollar.
Construction spending and ISM manufacturing index where manufacturer sentiment is likely to remain elevated considering strong domestic demand, are the only major events across the pond today.
On Friday Euro-zone inflation data came in on consensus and German inflation data came in above consensus, Euro core inflation fell to 0.9% from 1.1% which led to a weakness in the Euro. German labour market data showed a decline in unemployment – the 15th month in a row the market has showed a decline, but due to the Italian budget the Euro dipped.
Many expect the European Commission to reject the budget plans which has done the currency no favours. Domestic bonds declined rapidly and a slide in equities meant that versus the dollar the Euro dipped to 1.1570 before a slight recovery to 1.16.
Today we can expect manufacturing PMI numbers, Eurozone unemployment rate for August but neither should have a big influence on the market. Mortgage approvals out of the UK is one to keep an eye on but realistically the biggest threat to the Euro is the Italian budget negotiations which has an effect on bond, equity and FX markets.
Data to watch:
08:30 GBP Markit Manufacturing PMI (Sep)
08:30 GBP Mortgage Approvals (Aug)
09:00 EUR Unemployment Rate (Aug)
13:00 USD FOMC Member Bostic speech
14:00 USD ISM Manufacturing PMI (Sep)
14:00 USD ISM Prices Paid (Sep)
16:15 USD Federal Reserve Bank of Boston President Rosengren Speech