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Sterling reaches 8-month highs

Sterling reaches 8-month highs

GBP

Sterling maintained a strong tone before the weekend with a break above 1.3300 against the dollar while the Euro dipped to 2-month lows near 1.1220 despite UK caution.

CFTC data recorded a small net decline in long Sterling positions, although there was a dip in both long and short positions for the week as caution prevailed.

There were reports that the UK government was considering increased taxes on companies and capital gains to help narrow the budget deficit over the medium term, although the market impact was limited. French officials commented that Brexit talks were not advancing because the UK is being unrealistic while the UK government reiterated that it was prepared to walk away from talks if there was no move to a compromise.

Sterling maintained a strong tone despite fundamental reservations and posted 8-month highs close to 1.3400 against the dollar while the Euro secured only a marginal recovery to 1.1200. 

 

USD

US personal income increased 1.9% for July compared with expectations of 1.5% with the increase in income held to 0.4%. The core PCE prices index increased 0.3% on the month with the year-on-year rate at 1.3% from 1.0% previously. Despite the monthly increase, the rate remains well below the 2.0% target, reinforcing expectations of a very loose US monetary policy, especially after the Federal Reserve (Fed) announced that it would switch to an average inflation target.

The dollar overall was unable to make headway and the Euro settled close to 1.1900. CFTC data recorded a fresh increase in long Euro positions to a record high of close to 212,000 from 196,000 the previous week, maintaining the potential for a sharp correction if sentiment shifts.

Federal Reserve vice-chair Clarida stated that the macro models had been wrong and that it was difficult to justify higher interest rates in the absence of inflation. He reiterated a lack of support for negative interest rates and expressed reservations over yield curve control. He also stated that there are powerful global deflationary forces. The dollar overall remained under sustained pressure with month-end position adjustment a significant factor and complementing negative underlying sentiment.

The dollar dipped to fresh 27-month lows whilst securing no relief in Asia this morning as underlying sentiment remained notably weak.

 

EUR

The Euro settled close to 1.1900. CFTC data recorded a fresh increase in long Euro positions to a record high of close to 212,000 from 196,000 the previous week, maintaining the potential for a sharp correction if sentiment shifts.

German consumer prices declined 0.1% for August with year-on-year inflation at 0.0% compared with consensus forecasts of 0.1% and reinforcing a lack of inflationary pressure. ECB council member Schnabel, however, stated that there was no need to adjust policy if the economy meets forecasts.

Federal Reserve vice-chair Clarida stated that the macro models had been wrong and that it was difficult to justify higher interest rates in the absence of inflation. He reiterated a lack of support for negative interest rates and expressed reservations over yield curve control. He also stated that there are powerful global deflationary forces.

 

Data to watch 

15:00 – USD – ISM Manufacturing PMI

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