Sterling Slips as Recovery Stalls
Overall confidence in the UK outlook remained fragile after the latest GDP data, especially with expectations of a fourth quarter contraction. The NIESR estimated that GDP increased 0.3% for October with a sharp 12.3% contraction for November as the second lockdown in England takes effect. It also forecast a 2.2% GDP contraction for the fourth quarter, maintaining unease over the outlook.
There was also no positive rhetoric surrounding UK/EU trade talks and some hints from sources that little progress is being made pushing Sterling lower with the reluctance to buy the currency.
Bank of England Governor Andrew Bailey stated that the latest vaccine developments were broadly in line with the bank’s forecast assumptions. He also commented that he does not have a date in mind for the negative rates review outcome, although there was still a lot of work to do.
As reports on Thursday confirmed a sharp increase in new coronavirus cases, further unsettling the UK currency, additional reports that senior Prime Minister advisor Dominic Cummings would leave before the end of the year. The move sparked some fresh speculation that a Brexit deal was close and Sterling regained some ground against the Euro.
US consumer prices were unchanged for October, below expectations of a 0.2% increase, and the year-on-year rate declining to 1.2% from 1.4% previously. Core prices were also unchanged on the month with the annual rate lowering to 1.6% from 1.7% and below market expectations of 1.8%.
Initial jobless claims declined to 709,000 in the latest week from a revised 757,000 previously and below expectations of 735,000. Claims declined to 6.79mn from 7.22mn previously. There was, however, a further increase in pandemic assistance claims for the latest week.
The data maintained expectations that the Federal Reserve would maintain an extremely accommodative monetary policy which limited dollar support.
Eurozone industrial production declined 0.7% for September with the year on year decline at 6.8% from 6.7% previously as confidence remains fragile in the outlook.
The single currency, however, was able to resist a further test of the 1.1750 area against the US dollar before edging higher ahead of the US open. There was also an element of hope that coronavirus cases in Europe were starting to peak, although no confirmation had been noted.
As of writing, the Euro currently trades around the 1.1815 mark against its US counterpart.
Data to watch
14:30 – USD – Core PPI
14:30 – USD – PPI
16:00 – USD – Prelim UoM Consumer Sentiment
17:00 – GBP – BOE Gov Bailey Speaks.