No Brexit breakthrough before Queen’s speech.
The Pound held Thursday’s gains into Friday morning, but it wasn’t all plain sailing. EU Council President Donald Tusk used cautious rhetoric that introduced some doubt and volatility following Chief Negotiators Michel Barnier’s comments that talks had been constructive. Shortly before the New York open, Michel Barnier stated he’d been given the mandate to seal a deal by the EU 27 and that talks would now be intensive. Deal hopes and Sterling sentiment leapt up and the Pound zoomed ever higher, especially as UK government bond yields continued to surge. Sterling surged to 3-month highs, peaking at 1.2707 against the Dollar before correcting, and the Euro retreated to near 1.1495.
Futures market data again showed only a modest weekly decline in bets against the Pound and there will still be substantial scope for short covering (rapid Pound buying) if political sentiment improves further. The Northern Irish DUP issued a warning that they could oppose any deal, but the rhetoric from the Conservative Party was more positive. Sterling opens a little lower this morning as markets await further Brexit developments and anticipate tough negotiations. The government will also announce its domestic agenda with Sterling starting at 1.2570 against the Dollar and 1.1410 on the Euro.
The University of Michigan Consumer Confidence Index beat forecasts in strengthening to 96.0 in October, up from 93.2 previously and both the current conditions and expectations components strengthened. Boston Fed President Eric Rosengren reiterated a call for patience on interest rates and also expressed doubts whether the strength of consumer spending could be sustained. Minneapolis head Neel Kashkari stated that he would probably support an October rate cut. Overall, the Dollar dipped to 3-week lows on the Euro as stronger risk appetite curbed potential defensive US demand.
The EURUSD is little changed this morning with the pair trading near 1.1030. Federal Reserve comments will be assessed for clues as to a shift in the potential for an October rate cut. The Columbus Day bank holiday today will limit activity with no speeches scheduled, and Dollar payments delayed until Tuesday.
The improved Brexit sentiment provided an element of support to the Euro. German bond yields also rose and there were reports that the Bundesbank would run out of bonds to buy within 12 months. Overall bond yield spreads didn’t narrow further and the steam ran out for Euro buying before hitting selling interest above 1.1050 on the US Dollar. This morning the Vice President of the ECB speaks and European Industrial Production figures are released.