Sterling stumbles against weaker Dollar
Concerns that Brexit negotiations would extend beyond the end of October and eventually fail to produce a future trade deal dominated Friday. The Pound failed to make meaningful headway against a fragile US Dollar and the Euro strengthened to 11-month highs near 1.1050.
CFTC data revealed a further increase in short, speculative Sterling positions (bets that the price will drop) to the highest level since May 2017 at over 72,000 contracts. Despite the market betting Sterling will fall, the short positions also bring the potential for a sharp correction (when traders buy Sterling and drive the price up) on position liquidation if there is a shift in sentiment. International trends dominated yesterday, with Sterling gaining on the Dollar but being held below 1.2900. The Euro pushed to highs above 1.1035 amid gains across the board.
The Euro pushed up over the 1.1600 mark against the Dollar and is currently around the 1.1688 mark – this is mainly due to Dollar weakness. The German August IFO business confidence index rose, beating consensus significantly, which provided support for the Euro and combined with positive data has resulted in highs of near 1.1700.
All in all however, due to the Bank holiday in the UK, it has been a quiet start to the week. Little data in Asia and very little data in Europe yesterday mean that we start the session with little volatility expected. The latest news on the UK’s exit from the EU has meant a dip in the GBP-EUR rate.
Economic data today is very light. Consumer and Business confidence out of Italy, Employment Levels in Switzerland and M3 Money Supply for the Eurozone are the main pieces of data, but very little movement is expected. Thursday and Friday is when we see CPI figures for the region, which will provide the most volatility.
Federal Reserve Chair Jerome Powell stated strong income and job growth would trigger more rate hikes, but that gradual rate hikes steered a course between raising rates too slowly or too fast. Powell added that there’s no obvious sign of inflation accelerating above 2.0% and the US economy did not appear to be overheating. There were no references to the Fed’s independence but Powell did indicate that economic modelling would command less precedence than “a more pragmatic approach to policy setting” by the committee. Some doubt emerged surrounding a December rate hike, although futures markets still indicated that the chances of a further hike were over 60%. The rhetoric on inflation was seen as relatively dovish and the Euro pushed back above the 1.1600 level.
Data to watch:
15:00 USD S&P/Case-Shiller Home Price Indices (YoY) (Jun)