Pound gains on Dollar and Brexit Party weakness
With the general election date in the diary, the flextention in the bag and no tier one data there wasn’t much to drive Sterling. Add to that a large number of Oct 31st option expiries, bought as insurance for Brexit date, activity was limited. As a result today will be a lot more lively especially given month-end positioning.
For most of the day the Pound was largely unchanged, with only a modest lift following reports that the Brexit Party could withdraw from many parliamentary seats; reducing competition for the Tories in the General Election. The Euro settled around 1.1575 and following the Fed rate decision, a weaker Dollar allowed Sterling to move above 1.2900.
The US ADP data recorded an increase in US private-sector employment of 125,000 for October, marginally above consensus forecasts, although there was a significant downward revision to 93,000 from 135,000 for September. The advance reading for third-quarter GDP came in at 1.9% compared with consensus forecasts of 1.6% while price indices were mixed.
The dollar regained some ground after the GDP release with a retreat to near 1.1100 against the Euro. The Federal Reserve (Fed) cut interest rates to 1.75% at the latest meeting, in line with consensus forecasts and the third consecutive reduction. George and Rosengren dissented for the second successive meeting as they wanted no change in rates. According to the Fed, the labour market remains strong with economic activity increased at a moderate rate. Investment and exports were weak while underlying inflation remained below 2.0% and incoming information will continue to be monitored closely.
The initial reaction was muted given that a cut was fully priced-in and there was caution over further moves. Chair Powell stated that the outlook had moved in a positive direction and that it would take a material reassessment of the outlook for the Fed to change its policy stance. He would not, however, comment directly whether this was the last rate cut and also stated that rate hikes were unlikely given the inflation profile.
This morning the first estimate of the Euro-zoneinflation and third quarter GDP figures will be reported. The consensus expects the bloc’s economic growth to come in slightly weaker at 0.1% in Q3, while on an annualized basis, is expected to arrive at 1.1%. additionally, CPI is expected to drop to 0.7% YoY in Oct, compared to 0.8% seen previously while core inflation is seen lower at 1.0% YoY during the reported month vs. 1.0% last.
The Euro- Dollar pair keeps its upside consolidation phase intact near weekly highs of 1.1171, but a further push to the upside doesn’t look sustainable amid poor German Retail Sales data and ahead of the Eurozone economic releases. The reaction to the news could be limited, as the sentiment around the Dollar remains the main market driver today following the latest Fed rate cut and ongoing trade developments.
Data to watch
11.00 EUR – CPI
13.30 USD – Core PCE Price Index