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Sterling ascendant after Theresa gets backing

Sterling ascendant after Theresa gets backing

GBP
Political factors continued to undermine Sterling confidence and the Pound remained under pressure throughout Friday. Sterling briefly dropped to one-month lows around 1.3030 against the Dollar before recovering slightly while GBPEUR was trading around 1.1123. This was the Pound’s worst weekly performance of the year.

Commodity Futures Trading Commission (CFTC) data revealed another increase in net long, speculative Sterling positions; the highest level for over three years. Although there may have been a sharp reversal on position liquidation since the data was compiled, the Pound will face significant headwinds in the short term, therefore, scope for a corrective recovery will be limited.

Over the weekend, Theresa May was shown support by her cabinet and senior government officials. Although this provides some relief, there are still major concerns surrounding underlying tensions. Visa consumer spending data recorded a strong advance for September and the Pound edged higher this morning, testing 1.3100 against the Dollar.

USD

Friday was packed with economic data but the headline US Nonfarm payrolls fell well short of consensus forecasts. The market was expecting a figure of around 90,000 but it actually printed a decline of 33,000 for September. Although this was the first reported decline since 2010, it should be noted that hurricanes Harvey and Irma would have had a significant impact. Further, unemployment decreased to 4.2% from 4.4%, showing the lowest reading for over 16 years as the household survey reported a huge rise of over 900,000 employed individuals.

Average earnings increased 0.5% on the month, exceeding expectations of a 0.3% gain and was complemented with an annual increase of 2.9% year on year. The combination of firm unemployment data, an uptick in average earnings growth, and US yields moving higher should underpin Federal Reserve confidence for higher inflation and reinforce speculation for raising interest rates at the December meeting.

It’s a relatively quiet week for the Dollar, with market-moving data out on Wednesday in the form of FOMC minutes and on Friday with Retail Sales and Consumer Price Index.

EUR

At the end of last week, we saw the Euro showing signs of resilience, posting gains across the board after the US payrolls report. However, renewed jitters over the situation in Catalonia, the probable announcement of independence next week, and the potential political consequences for the Spanish Government have been also weighing on the Euro’s downside. Headlines from the Spanish PM Rajoy’s interview, as published in Die Welt, cited this morning that Spain would not be divided. When asked if there was a risk that Spain would be divided the response was ‘Absolutely not. Spain will not be divided and national unity will be preserved. We’ll do everything that legislation allows to ensure that.’

Later today, amid holiday-thinned markets, focus remains on the German industrial production data and Eurozone Sentix numbers for fresh impetus to the Euro, as the Eurozone investor sentiment for October is expected to improve to 28.5 versus 28.2 last month. After strong German factory orders on Friday, we are likely to be in for a strong print for German industrial production as well. The Euro Sentix index is at a high level but we look for a further rise in September, partly reflecting strong equity markets.

During the week there is a long list of European Central Bank (ECB) speeches coming up which could lead to volatility for the common currency.

Data To Watch:

N/A EUR Eurogroup meeting
N/A GBP UK Prime Minister Theresa May Speech
09:30 EUR Sentix Investor Confidence (Oct)
17:00 EUR ECB’s Sabine Lautenschläger Speech

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