Trade deal expected in a matter of days
The latest UK CPI inflation release generated little more than a mild appreciation for Sterling. The Bank of England’s chief economist Haldane stated that the economy beat expectations for Q3, Q4 is still very uncertain and that the outlook for next year appears brighter. Haldane also stated there appears to be significant benefit from easing rates below the current lower bound of just above zero.
Expectations that the EU and UK would conclude a trade deal within the next few days allowed Sterling to peak at highs around 1.3300 against the Dollar while the Euro retreated to lows just below 1.1210. There were also signs of an imminent UK/Canada trade deal and rising pressure on the EU Commission to release contingency plans for a no-deal scenario.
After failing to hold the 1.3300 mark Sterling corrected below 1.3250 as a slightly more global cautious risk tone undermined support. The Euro also recovered to just above 1.1173.
Investors will be watching rhetoric from the EU Summit today and vaccine developments will also be significant with some encouraging reports from the UK Oxford trial, but Sterling struggled to gain fresh traction.
US housing starts increased to an annual rate of 1.53mn for October from 1.46mn previously and above market expectations of 1.46mn while building permits were unchanged at 1.55mn for the month. Although interest-rate sensitive areas of the economy remain strong, overall confidence in the outlook stumbled, especially with concerns over the impact of tighter restrictions on activity due to increased coronavirus cases.
New York Federal Reserve President Williams warned that a loss of fiscal support could slow the economy in coming months and he also noted that the central bank could take additional action if necessary. Richmond head Barkin warned over the risks posed by any early ending of emergency lending programmes. The jobless claims data on Thursday will be monitored closely for further evidence on labour-market trends.
The Euro maintained a firm tone into the New York open as the dollar remained on the defensive. Expectations of an UK/EU trade deal also provided an element of support to the single currency. There was further resistance on approach to the 1.1900 area with speculation that the ECB would look to curb potential currency gains.
The Euro also recovered to just above 0.8950. Rhetoric from the EU Summit will be watched closely on Thursday and vaccine developments will also be significant with some encouraging reports from the UK Oxford trial.
Data To Watch
14:30 – USD – Philly Fed Manufacturing Index
14:30 – USD – Unemployment Claims
16:00 – EUR – ECB President Lagarde Speaks
16:00 – USD – CB Leading Index