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Sterling gains against all but Dollar

Sterling gains against all but Dollar

GBP
The UK GDP reading for Q2 was in line with expectations at 0.3%, but there was a downward revision to the year-on-year reading to 1.5% from 1.7%. Business investment was slightly stronger than expected while consumer credit growth remained firm. The latest current account data was also notably wider than expected at £23.2bn for the quarter from an upwardly-revised £22.3bn the previous quarter, reinforcing underlying balance of payments concerns.

Overall, Sterling moved lower with some evidence of Quarter-End selling as political factors remained a significant factor. The latest Commodity Futures Trading Commission (CFTC) data recorded a further shift in positioning with a net long, non-commercial position for the first time since October 2015. This will increase the risk of fresh Sterling selling if there are fresh fundamental concerns. In this context, the Purchasing Managers’ Index (PMI) data releases will be important this week while Brexit negotiations and tensions within the government will continue to be watched closely.

Boosted by a growing conviction that UK monetary policy was about to be tightened, Sterling continued to make headway, admittedly helped by the persistent weakness of the Greenback, and in the fourth quarter, there’s no reason to expect that to change.

Sterling gained some support against the Euro on Monday while drifting lower against the Dollar. However, while GBP may have a fundamental advantage over many other currencies, GBPUSD is ripe for a large trending move lower.

USD

Last week, news of the release of tax reform plans by President Trump caused the Dollar to strengthen against its peers as he mentioned calls for sweeping tax cuts and a simplification of the tax code. This added to the already optimistic sentiment following signs of solid consumption growth, fixed investment in the US Q2 GDP, and strength within capital spending.

Friday saw August US Personal Consumption Expenditures (PCE) data record a 0.2% increase whilst the year-on-year rate was unchanged at 1.4%. Despite all the firm tone, however, the core rate did decline slightly to 1.3% from 1.4% which provides doubts around inflation trends.

Future Fed monetary policy is in question as this week President Trump nominates his board members. On Friday, several news stories stated Trump had met with possible candidates for the job as Fed Chair with a decision to be made over the next two or three weeks.

The Dollar closed last week at 1.3397 against the Pound, just shy of the 1.34 barrier which seemed to be the resistance throughout the week whilst it closed at 1.1816 against the Euro. This week, we’re busy today and at the end of the week; ISM Manufacturing PMI and Prices Paid this afternoon will have investors and traders tentative leading up.

EUR

German unemployment fell by 23,000 for September, maintaining confidence in the labour market. Headline Eurozone inflation remained at 1.5% according to the flash reading for September compared with an expected increase to 1.6%, while the core rate declined slightly to 1.2% from 1.1%. Overall, German yields were little changed on the day which had little Euro impact amid no major comments from European Central Bank (ECB) officials.

Yesterday, a referendum vote was held for Catalonia’s independence from Spain, where 90% of Catalans voted “Yes”. However, only 42.3% of Catalonia’s participated in the referendum, which Spain’s constitutional court has declared illegal.

The Euro has started the week on the defensive following increased political uncertainty after the recent developments from Catalonia, where latest news cited that the region is expected to announce the independence from Spain in the next few days. However, unless the situation morphs into a more sustainable threat to political stability, the currency is unlikely to react further.

In Europe, final PMIs and Euro area unemployment for August are due out and are going to garner investors’ attention.

Data to Watch:
8:55am EUR Markit Manufacturing PMI (Sep)
9:00am EUR Unemployment (Aug), Markit Manufacturing PMI (Sep)
9:30am GBP Markit Manufacturing PMI (Sep)
10:00am EUR Unemployment Rate (Aug)
11:15am EUR ECB’s Praet Speech
2:45pm USD Markit Manufacturing PMI (Sep)
3:00pm USD ISM Prices Paid (Sep), ISM Manufacturing PMI (Sep), Construction Spending (MoM) (Aug)
7:00pm USD FOMC Member Kaplan Speech

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