Sterling Edging Higher
The UK CPI inflation rate increased to 0.7% from 0.5% with the underlying rate at 1.5% from 1.3% with the Euro just above 0.8950 as political developments dominated.
Bank of England Governor Bailey stated yesterday that there was now some light at the end of the tunnel, but there was also no room for complacency. Bailey also suggested that quantitative easing could prevent an unwarranted tightening of financial conditions.
A number of sources are reporting that a Brexit trade deal could be reached by early next week as France seems open to making concessions on fishing, although there was still a high degree of uncertainty over the outlook. EU Chief Negotiator Barnier is expected to brief EU Ambassadors on Friday with speculation of further delays. Sterling gained an element of support from expectations of a strong global rebound in 2021 which would tend to benefit the UK economy and currency.
US retail sales increased by 0.3% for October following a downwardly-revised increase of 1.6% for September and slightly below consensus forecasts of 0.5%. Underlying sales also missed estimates with a 0.2% increase while the control group increase was held to 0.1% for the month following a 0.9% gain the previous month.
Elsewhere, the NAHB housing index strengthened to a record high of 90 from 85 previously as the very low level of interest rates continued to spur demand in the housing sector. Import prices declined 0.1% on the month with a 1.0% year-on-year decline.
Fed Chair Powell stated that the economic recovery has significant downside risks in the short term. He reiterated that the central bank would use all tools to support the economy. He reiterated that the economy also needed additional fiscal support and very low yields continued to curb US currency support. The dollar was unable to gain any traction, especially after the downbeat comments from Powell.
The Euro is trading above 1.1875 as markets are torn between rising coronavirus cases and hopes for an upcoming vaccine. ECB President Lagarde has stated that immunization is not a game changer for the bank’s forecasts as final inflation figures are eyed for October.
In the eurozone, there are tentative signs that the covid curve is turning a corner, perhaps opening the door to easing restrictions in some countries as Lagarde states additional stimulus is coming, while Fed Chair Powell only opened the door to a potential expansion.