Sterling Finds Support As Confidence Weakens
Underlying confidence in the UK remains fragile as the latest YouGov consumer confidence data recorded a decline from 102.4 to 101.3 previously and the first decline in five months which maintained reservations over the recovery outlook.
With Brexit talks continuing, UK government officials have stated there is still a lot of work to do to bridge significant gaps with the EU and agree a deal. Talks continue until Wednesday in the UK and are then expected to continue in Brussels from Thursday onwards. Markets overall continued to expect that some form of deal would be secured during November with Sterling finding support around the 1.3000 against the Dollar and 1.10 against the Euro.
Given the dip in risk appetite the Pound was broadly resilient amid slightly weaker Dollar although confidence in UK fundamentals still remains frail.
The Chicago Fed National activity index declined to 0.27 for September from a revised 1.11 the previous month and below expectations of 0.60.
The dollar maintained a firmer tone with the dip in risk appetite contributing to an element of defensive demand, although the Euro was able to hold above the 1.1800 level.
Opinion polls for the Presidential election continued to indicate strong support for Biden while President Trump again alleged that there would be discrepancies in mail-in voting and potential legal challenges. Strong expectations of a Democrat clean sweep limited any negative market impact with expectations of a substantial fiscal package after the election.
The German IFO business confidence index declined to 92.7 from 93.2 previously for October and slightly below forecasts. The current conditions component improved slightly to 90.3 from 89.2, but this was offset by a decline in expectations on the month. IFO economist Wohlrabe stated that businesses are becoming more nervous as the number of coronavirus infections continues to increase. He also stated and warned that closure of schools would have a massive impact on the economy.
Further Euro-zone coronavirus concerns continued with a French government scientific adviser stating there are circa 100,000 new coronavirus cases a day with official data recording 50,000 cases and a positivity rate of 17%. There were also reports that German Chancellor Merkel was planning to announce increased restrictions this week, further dampening activity.
As of writing, the Euro currently trades just above the 1.1820 level against the Dollar.
Data to watch
13:30 – USD – Core Durable Goods Orders
13:30 – USD – Durable Goods Order
15:00 – USD – CB Consumer Confidence