Will Theresa Croak?
Sterling came under serious pressure on Thursday with a significant dip in sentiment. Speculation increased with regards to leadership when Prime Minister Theresa May was seen to be in an even weaker position, which only added to fears that it would be even more difficult to make headway in Brexit talks.
Sterling dipped sharply against the Greenback to four-week lows just below the 1.3100 level while GBPEUR was trading around 1.1173 with a decline in car sales also undermining sentiment.
The Bank of England’s Ian McCafferty stated that the shift in market expectations surrounding an interest rate increase late in 2017 had reduced the risk of an unpleasant surprise. He also commented that the global economy was showing signs of recovering from the 2008 financial crisis, but Sterling was unable to gain support from the rhetoric and remained under pressure this morning as sentiment remained negative.
US initial jobless claims fell to 260,000, down from 272,000 last week as the hurricane impact gradually faded. The trade deficit was slightly lower than expected at $42.4bn, down from a revised $43.6bn previously, the lowest deficit for 11 months while total exports increased to a 30-month high which underpinned sentiment.
The Philadelphia Fed’s Harker reiterated that he’d pencilled in a rate hike for December and expects three more rate increases for 2018. San Francisco head Williams also stated that the Fed does not necessarily need to wait for inflation to hike further this year.
Overall, the Euro gradually drifted lower against the Dollar with a re-test of the key 1.1700 area after the European close as the Dollar index strengthened to a seven-week high. There will be choppy trading surrounding today’s Nonfarm Payrolls with expectations of a print below 100,000 due to the impact of successive hurricanes.
The European Central Bank (ECB) minutes yesterday supported the view that any Quantitative Easing (QE) tapering will be gradual and monetary policy should remain accommodative.
The single currency had a mixed performance against its peers as it strengthened against the Pound, retreating to lows of 1.1173 whilst weakening against the Dollar, pushing down to lows of 1.1687.
Further, Chief economist Praet called for a close monitoring of the exchange rate. Praet mentioned policy would remain loose as the minutes were generally in-line with expectations. This caused German bond yields to nudge lower, giving reasons for the Euro to weaken against the Dollar.
Tensions surrounding Catalonia did ease slightly yesterday as the region appeared to hold from an immediate independence declaration.
Data To Watch:
13:00 GBP MPC Member Haldane Speech
13:30 USD Average Hourly Earnings (YoY) (Sep)
13:30 USD Average Weekly Hours (Sep)
13:30 USD Nonfarm Payrolls (Sep)
13:30 USD Unemployment Rate (Sep)
13:30 USD Labor Force Participation Rate (Sep)
16:45 USD Federal Reserve Bank of Boston President Rosengren Speech
17:15 USD Fed’s William Dudley speech
17:45 USD FOMC Member Kaplan Speech
18:00 USD Baker Hughes US Oil Rig Count
18:00 USD Fed’s Bullard speech
20:00 USD Consumer Credit Change (Aug)