Sterling Rise Continues
Sterling surprisingly gained yesterday despite underlying unease over fundamental developments as EU Commission President Von der Leyen once again, called on the UK to respect the Withdrawal Agreement.
Reports later in the day suggested that the government were planning fresh safeguards in the Internal market Bill in an attempt to appease Conservative backbenchers. Concessions would improve the potential for passing the legislation, although there will still be major concerns from the EU whilst an additional increase in warning front the US.
A solid tone in risk appetite helped underpin Sterling sentiment which allowed the UK currency to strengthen to the 1.3000 area against the Dollar and to 1.0995 against the Euro. The Bank of England are also not expected to change monetary policy at today’s meeting with the post decision statement being watched closely for hints on potential action later this year.
US retail sales increased by 0.6% for August following a downwardly revised 0.9% increase the previous month and below expectations of 1.0%. Underlying sales increased 0.7% and below consensus forecasts of 0.9% while the control group recorded a 0.1% decline. The data maintained reservations that the economic recovery was slowing.
The Federal Reserve (Fed) made no changes to interest rates, in line with consensus forecasts, while bond purchases will continue bond purchases at least at the current rate. According to the statement, the on-going public health crisis will pose considerable risks to the economic outlook over the medium term even though conditions have improved.
The committee will seek a 2% inflation rate over the medium term and will aim for a rate moderately above 2% for some time so that inflation averages 2% over time. There was a 7-2 vote as Minneapolis President Kashkari wanted a sustained increase in core inflation above 2% while Dallas head Kaplan wanted greater flexibility.
Powell reiterated that there were important changes to the statement. Inflation was running below the Fed’s objective and a full economic recovery is unlikely until people are confident to engage in activities. The overall stance and rhetoric was notably dovish although there was no move to introduce yield curve control and Powell was slightly more optimistic over the outlook and hence the US currency regained some ground following Powell’s comments.
The Euro has been on the back foot against the Dollar, sliding below 1.18 and hitting new weekly lows. This on the back of yesterday’s Fed meeting.
After weeks of strength in the common currency, could this be the start of a shift in power with the Dollar regaining and pushing the Euro down to a near resistance level around the 1.17.
AS of writing, the Euro currently trades around the 1.1775 mark against its US counterpart.
Data To Watch
12:00 – GBP – MPC official Bank Rate Votes
12:00 – GBP – Monetary Policy Summary
12:00 – GBP – Official Bank Rate
12:00 – GBP – MPC Asset Purchase Facility Votes
13:30 – USD – Philly Fed Manufacturing Index
13:30 – USD – Unemployment Claims