Sterling Edging Higher as Trade Talks Intensify
The final UK PMI services-sector index was revised higher to 56.1 from the flash reading of 55.1, although this was still a slowdown from the August reading. In comments made yesterday, BoE Committee Member Jonathan Haskel stated that near-term risks for the economy are skewed to the downside but Inflation pressures are likely to remain low with a material amount of spare capacity in the economy. Haskel also stated he was ready to back further stimulus and was slightly more positive on the potential benefits of negative interest rates. There was no significant reaction to Chancellor Sunak’s Conference speech with underlying concerns over unemployment still significant with the furlough scheme ending at the end of this month.
The overall impact of domestic economic fundamentals was limited with markets monitoring political developments and global risk appetite. There were underlying expectations that some form of the deal would be agreed with the EU even if the timetable slipped while firmer equity markets underpinned the currency.
Sterling pushed higher towards the 1.3000 against the Dollar whilst against the Euro stayed pretty stagnant. Developments surrounding trade talks will again, continue to be watched closely.
The US PMI services-sector index was unchanged from the flash reading of 54.6 and slightly below the previous reading of 55.0. The ISM non-manufacturing index strengthened slightly to 57.8 for September from 56.9 previously and above consensus forecasts of 56.5. There were stronger readings for new orders and business activity while employment moved into positive territory for the month. The data had little overall impact as risk conditions and politics dominated.
Risk appetite held firm after President Trump was released from hospital, although there were still underlying reservations over his health while there were further coronavirus cases within the White House. There were also further uncertainties over fiscal policy developments with on-going tensions between Treasury Secretary Mnuchin and House Speaker Pelosi, although talks are set to continue.
The dollar overall lost support during the day yesterday amid a dip in potential defensive demand.
The Euro-zone PMI services sector index was revised higher to 48.0 in the final reading from the flash reading of 47.6. The German figure was revised into expansion territory, although the sector overall was in contraction and there was a sharp decline for the Spanish services sector. The Euro-zone Sentix investor confidence index also edged lower to -8.3 for October from -8.0 previously, although this was slightly above consensus forecasts of -9.5. Euro-zone retail sales increased 4.4% for August with a 3.7% annual increase from -0.1% previously and above consensus forecasts of 2.2%.
Markets remained uneasy over coronavirus developments given fresh restrictions in Paris and Madrid which will undermine activity, especially in the services sector.
As of writing, the Euro currently trades just over the 1.1790 mark against its US counterpart.
Data to watch
09:35 – EUR – President Lagarde Speaks
14:00 – EUR – President Lagarde Speaks
15:40 – USD – Fed Chair Powell Speaks