Sterling rallies on interim optimism
In the absence of tier one UK data, Sterling was given wings by renewed Brexit optimism. GBPUSD had fallen to 1.3037 by midday, but gained 108 pips to close at 1.3145. The Euro story differed only in an earlier dip to 1.1376 before rallying 70 pips to close at 1.1446.
Sterling bulls have been encouraged by headlines indicating all hope is not lost in the ongoing Brexit saga and that both sides are pushing for an interim deal ahead of a fast-approaching November deadline. Investors are backing the Pound in anticipation of some forward momentum on talks. The Irish border dispute is still unresolved, as well as the duration of the UK’s stay in European Customs Union. The threat that eurosceptic MPs will vote down any Chequers-based deal remains.
The UK manufacturing output and GDP data are forecast to print a 0.1% monthly increase, down on last month’s 0.3%, and a disappointing reading below could take some of the shine off the Pound. Later, Bank of England chief economist Andy Haldane is slated to speak.
The US Dollar is trading higher against its peers this morning with the Dollar index hovering close to a six-week high.
The US President, yet again, expressed dissatisfaction with the pace of Federal Reserve (Fed) hikes given what he considered a lack of inflationary pressure.
Today we see Chicago Fed’s Evans speaks on current economic conditions and monetary policy in Michigan, and Atlanta Fed’s Bostic participates in a discussion at the National Association of Corporate Directors in Atlanta.
Italian Finance Minister Tria said yesterday that the direction bond yields are heading is at an unacceptable level, stating that further explanations of the budget would help bring spreads down. Italian versus German 10yr government bond yield spreads is at its highest point in five years.
A key test will be this morning’s auction of 12 month bonds, with demand being a good indicator of confidence. This will have an effect on the Euro and, if the market feels as though Italy’s blatant rejection of EU regulations means it is heading in the wrong direction, we can expect to see pressure on the Euro.
GBPEUR is at its highest level since June, at around the 1.1410 level, due to positive news on Brexit. There is very little data coming out of Europe today with the Swiss Real Estate Index, Industrial output from France and Italy and European Central Bank’s (EBC) Mersch speech.
Data to Watch:
07:00 EUR Non-monetary policy’s ECB meeting
08:30 GBP Manufacturing Production (MoM) (Aug)
08:30 GBP Industrial Production (MoM) (Aug)
08:30 GBP Manufacturing Production (YoY) (Aug)
08:30 GBP Gross Domestic Product (MoM) (Aug)
12:30 USD Producer Price Index ex Food & Energy (YoY) (Sep)
13:15 USD FOMC Member Williams speech
14:35 USD FOMC Member Williams speech
22:00 USD FOMC Member Bostic speech