Sterling Dips On Negative Int Rate Rumours
The CPI inflation rate increased to 0.5% from 0.2% and in line with forecasts with the core rate at 1.3% from 0.9% while the September budget deficit increased to £36.1bn from £7.7bn last year.
Bank of England member Dr Gertjan Vlieghe stated that the risks of negative rates being counter-productive were low. He also mentioned that the downside economic risks appear to be materialising and that the outlook for monetary policy is skewed towards adding more stimulus. Those remarks triggered a fresh bout of selling pressure for the Pound that the central bank could opt for negative rates and their next November meeting.
The European Commission also stated their intention to intensify trade talks with the UK and that EU Chief Negotiator Barnier would come to London on Thursday for further discussions. The UK government, however, repeated its position that there was no justification for re-starting talks and that the EU needed to make concessions before negotiations would resume.
Sterling advanced slightly against the Dollar, but stalled again below the 1.3000 level and fell just short of the 1.0930 against the Euro. The robust risk tone helped underpin Sterling as politics still continue to dominate.
US housing starts increased to 1.42mn for September from 1.39mn previously, but slightly below consensus forecasts. In contrast, building permits strengthened to an annual rate of 1.55mn from 1.48mn and above market expectations of 1.52mn. The Philadelphia Federal Reserve (Fed) non-manufacturing index strengthened to 25.3 for October from 20.4 previously and new orders remained in expansion territory, although there was a slowdown from September while the number of employees continued to increase.
There were further meetings between Treasury Secretary Mnuchin and House Speaker Pelosi on a potential fiscal stimulus. A spokesman for Pelosi stated that the two sides had moved closer and will meet again on Wednesday. The rhetoric continued to underpin market sentiment as US equity futures posted further gains.
The dollar was on the defensive amid longer-term reservations over the US fundamentals. Expectations of further US fiscal stimulus continued to underpin risk appetite on Wednesday which undermined demand for the dollar as the US currency index declined to 1-month lows.
The buying pressure around the single currency remains well and sound for yet another session as the Euro climbed to multi-week highs in the 1.1855 region against the Dollar.
With Euro support coming from a firmer tone in global equity markets, there are still underlying concerns surrounding the coronavirus situation as the number of cases in Europe continues to rise and further restrictions were imposed. With no positivity coming out from the Brexit talks the Euro’s overall performance was particularly impressive as it posted significant gains heading into the US session yesterday.
As of writing, the Euro currently trades around just above the 1.1850 mark against its US counterpart.
Data to watch
07:00 – GBP – CPI
13:10 – GBP – MPC Member ramsden Speaks