Sterling recovery12th October 2018
The Pound opens at 1.3200 against the Dollar, and 1.1429 against the Euro.Yesterday was moderately disappointing from a data perspective but Sterling was resilient continued to gain ground on it’s peers. Despite August’s GDP figures showing no growth, Michel Barnier’s comments, indicating that a Brexit deal is closer, further fueled the recent Brexit optimism. Overnight, the UK RICS house price balance fell back to 2% from 1% in the previous month.
This morning sees the release of the credit conditions survey. Also, speeches by Bank of England Governor Mark Carney and MPC Member Vlieghe will make this another busy day for Sterling.
German Italian yield spreads fell back below the 300 bps mark which came as a welcome relief to the Euro. Focus still remains on Italy with markets reacting to their confrontational attitude towards the EU, but versus the dollar the pair crept back towards the 1.15 mark providing some encouragement to the market.
Michel Barnier announced yesterday that 85% of the Brexit deal is already done, with the main points being that the UK will be leaving the single market and the customs union. ECB Board Member Mersch also reiterated his belief that the strength of the Eurozone will continue to support the rise in prices.
Thursday’s economic calendar consists of CPI data out of France and Spain, as well as speeches from BOE Governor Carney and MPC Member Vlieghe. The most volatility is expected from the speeches and from this afternoon’s CPI data out of the US but no surprises are expected to be sprung.
The US Dollar was widely mixed yesterday on a slow day for US data financial data. The main story today has been a Market Sell-Off which has somewhat diminished the strength of the Greenback.
US producer prices rose 0.2% for September, in line with consensus expectations, although the year-on-year rate was slightly below consensus expectations at 2.6%. The core monthly increase of 0.2% increased gave an annual rate of 2.5% from 2.3%, although today’s CPI data will be much more important.
Chicago Federal Reserve (FED) President Evans stated that he was very comfortable with the current rate path and that the Fed could shift to a slightly restrictive stance and then pause. As equity markets continued to decline sharply, President Trump increased his criticism of Federal Reserve policies and called their actions crazy which also hampered US sentiment.
The key focus, later today will be on the latest US consumer inflation figures, which might influence Fed rate hike expectations and play an important role in driving the near-term sentiment surrounding the buck.
Data to watch
06:45 EUR Consumer Price Index (EU norm) (YoY) (Sep)
08:30 GBP BOE Credit Conditions Survey
11:30 EUR ECB Monetary Policy Meeting Accounts
12:30 USD Consumer Price Index Core s.a (Sep)
12:30 USD Consumer Price Index (MoM) (Sep)
12:30 USD Consumer Price Index Ex Food & Energy (YoY) (Sep)
12:30 USD Consumer Price Index (YoY) (Sep)
12:30 USD Consumer Price Index Ex Food & Energy (MoM) (Sep)