Unilever acknowledges the Elephant in the Room
The Pound’s recovery ran out of steam yesterday, settling around 1.2200 against the Dollar and 1.1100 against the Euro. Bank of England deputy governor Cunliffe made no effort to talk up Sterling in his speech yesterday; he warned of the potentially negative effects of Brexit-related uncertainty in the financial sector. He also commented that the downward trend in Sterling was likely to continue, but that weakness would be incorporated into the Bank of England’s November growth forecasts.
Sterling’s depreciation has been at the centre of a spat between Tesco and Unilever. The latter’s products have disappeared from shelves as they argue who should absorb the increase in costs as a result of the weaker Pound.
The current rally in the Greenback (US Dollar) is down to growing expectations of a Fed rate hike, widely expected to be announced in December. The minutes of yesterday’s Fed September policy meeting revealed that several Federal Reserve policy makers judged that a rate hike would be warranted if the US economy continued to strengthen, but doubts on inflation remained.
EURUSD declined precipitously close to the key 1.1000 handle, largely due to the rampantly bullish US Dollar as well as the Fed minutes. Ahead of tomorrow’s speech from Janet Yellen, the markets are likely to prepare themselves for a hawkish tone from the Fed chair which could keep the Dollar well supported.
Eurozone Industrial Production Index data printed above consensus at 1.8%, up from a previous low of -0.5%, but there was limited impact on GBPEUR. Late in the European trading session, there were reports that the European Central Bank (ECB) could modify its bond-purchase programme slightly, potentially allowing the purchase of some bonds even if the yield was below the -0.40% deposit rate. This would in effect be paying to lend money.
Data to watch: Bank of England Governor Mark Carney Speaks. 7am German September CPI, MoM, YoY and Harmonised. 1.30pm US Initial Jobless Claims, Import & Export Price Index. 5.15pm US Fed Member Harker Speaks. 7pm US Monthly Budget Statement.