UK Awaits New Lockdown Measures
Sterling secured limited support from Friday’s retail sales data amid unease that the recovery in demand would stall. It was undermined by continued tension over the Brexit situation as further areas in England were put under tougher restrictions and there was further speculation that the whole of the country could be put under a short-lived lockdown as the UK overall recorded the highest number of new infections of over 4,300 on Friday, the highest number for four months.
Sterling was unable to break above 1.3000 key level against the Dollar and drifted lower to the 1.2900 area whilst similarly moving up to the 1.0970 against the Euro before falling to the 1.08995.
There were reports that Chancellor Sunak would extend business support plans while Rightmove reported a 5.0% annual increase in house prices with increased transactions fuelled by the stamp duty holiday. CFTC data also recorded a decline in long Sterling positions to 2,000 contracts from 13,000, indicating that positivity around the UK currency had been cut following the slide in spot prices.
The US second-quarter current account deficit widened to $170.5bn from a revised $111.5bn previously and above market expectations of $158bn. This was the widest quarterly deficit for over 11 years, reinforcing underlying US dollar vulnerability, especially given the contrast with a substantial Euro-zone surplus.
The University of Michigan consumer confidence index strengthened to 78.9 for September from 74.1 previously and above market expectations of 75.0. There were net increases for the current conditions and expectations components for the month. There was, however, speculation that the recovery momentum is slowing some high-frequency indicators such as the number of diners at restaurants have started to decline once again.
The dollar was unable to make headway this morning.
The Euro-zone July current account surplus declined to 16.6bn Euros from 20.7bn the previous month while the 12-month surplus increased to 259bn and 2.2% of GDP. The structural current account surplus will remain a significant underlying factor over the medium term. Italian industrial orders increased 3.7% for July to give a year-on-year decline of 7.2% from 11.6% previously as coronavirus concerns persisted.
CFTC data recorded a decline in long, non-commercial Euro positions to 179,000 contracts in the latest week from 198,000 previously, although there is still scope for further Euro selling if market sentiment shifts. In particular, there will be concerns over Euro-zone coronavirus developments.
As of writing, the Euro currently trades around the 1.1860 against its US counterpart.
Data to watch
15:00 – USD – Fed Chair Powell Speaks