Pound on an even keel
Sterling maintained a relatively steady tone yesterday, drifting up to 1.1235 against the Euro, and remained within a 50 pip range against the Dollar, closing not far from the opening price. UK retail sales data was slightly weaker than expected with an unchanged reading for September, although the August data was also revised up to unchanged from -0.2% previously.
Prime Minister Theresa May’s first EU summit saw President of the European Council, Donald Tusk, reiterating an “Article 50 first, negotiations after” stance. French and German leaders hardened the rhetoric, stating that a hard Brexit would lead to hard negotiations.
The US jobless claims data was slightly higher than expected yesterday at 260,000 for the latest week, up from 247,000 previously. The Philadelphia Fed index edged slightly lower to 9.7 for October from 12.8. This data should underpin overall confidence, although market impact was limited.
New York Fed President Dudley stated that interest rates were likely to increase this year if the US economy stays on track. The US election remains a potential source of volatility. That said, based on current opinion polls, the evidence from recent price action suggests that the FX market views a Clinton victory as a positive for the US Dollar.
The European Central Bank revealed interest rates would be held at 0%, while the deposit rate also remained at -0.4%. Mario Draghi stated that there would not be any changes to policy at least until December, when it is up for revision. An extension to the bond buying programme is yet to be discussed but Draghi has mentioned that a sudden end to QE was unlikely. The markets have interpreted this as meaning that bond buying will overrun past March.
The single currency weakened towards the end of the European session after Mr Draghi’s comments and ended the day versus Sterling at around the 1.1220 levels.
Data to watch: 9.30am UK Public Sector Borrowing. EU Leaders Summit.