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Sterling Up On Agreement Optimism

Sterling Up On Agreement Optimism

GBP

Sterling remained under pressure in early Europe yesterday with a retreat to lows near the  1.2860 against the Dollar and 1.0960 against the Euro. There was however, a sharp reversal following reports that the UK would not walk out of trade negotiations with the EU even though no deal was in place. EU sources indicated that some progress had been made in negotiations, but that there were still important differences in the areas alongside the EU also wanted strong governance to maintain trust. If the optimism continues, this will prove a huge boost for Sterling.

US Treasury Secretary Mnuchin stated that it is critical that the UK finishes their deal with the EU so the US can run a deal in tandem and ahead of the EU Economic Summit, further reports stated expectations that coronavirus considerations will substantially increase pressure to secure a deal on both sides. Sterling holds firm currently around the 1.3000 against the Dollar and 1.1070 against the Euro with uncertainty and volatility remaining extremely high.

 

USD

US producer prices increased 0.4% for September with the year-on-year increase also at 0.4% and above market expectations of 0.2% while there was an underlying increase of 1.2% over the year. There were no significant implications for monetary policy with other factors dominating.

Richmond Fed President Barkin stated that the unemployment rate is around 11% when adjusted for the drop in participation rate. He reiterated that the Federal Reserve will keep rates low until there is a moderate overshoot in inflation. Vice-Chair Clarida stated that it could be another 12 months before the economy reaches a pre-pandemic peak.

 

EUR

Euro-zone industrial production increased 0.7% for August with a 7.2% annual decline and the data was broadly in line with consensus forecasts. With further expectations of easing by the ECB before the year end, council member Villeroy retreated that the central bank was ready to do more if needed. 

The Euro overall regained some ground as the Dollar retreated once again, albeit with a lack of momentum with the currency peaking just above the 1.1770. The Euro was also hampered by concerns over the coronavirus situation, especially as French President Macron declared a national emergency and introduced curfews in several major cities, whilst deciding against a second national lockdown. Chancellor Merkel also warned over the situation in Germany as new cases hit a record high. 

As of writing, the Euro currently trades around the 1.1740 against its US counterpart.

 

Data to watch

All Day – EUR – EU Economic Summit

13:30 – USD – Philly Fed Manufacturing Index 

13:30 – USD – Unemployment Claims 

17:00 – EUR – President Lagarde Speaks

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