Sterling spiked yesterday morning on speculation that Downing St would make a major concession on the Northern Ireland backstop. The excitement and the Pound deflated as soon as the reports were denied. The House of Commons will open for an extraordinary session on Saturday October 19th to debate future steps. Jean-Claude Juncker stated that the EU was still working on a deal whilst Chief Negotiator Michel Barnier stated that the EU was not in a position to find an agreement.
The markets remained pessimistic over the outlook which undermined Pound sentiment and Sterling traded near the 1.2200 mark on the Dollar after the spike to 1.2290 and the Euro pushed to closer to 1.1111. RICS housing index for September recovered to -2 from -4, but activity declined.
This morning’s data, UK industrial production and GDP data could be overshadowed by Boris Johnson’s meeting with Irish Premier Leo Varadkar.
The US dollar retreated slightly ahead of yesterdays US open with slightly more positive US-China trade rhetoric and limited gains in commodity currencies. US JOLTS data recorded a declined in job openings to 7.05mn for August from 7.17mn and slightly below consensus forecasts with a decline in net hires which suggested a limited labour-market cooling. Federal Reserve (Fed) Chair Powell stated that it was important to keep inflation around the 2% target in order to create room to adjust policy while keeping inflation expectations anchored.
Minutes from the September Fed meeting stated that most policymakers believed a rate cut was needed given the economic outlook with risk management and inflation objectives also cited as justification. Several committee members, however, favoured maintaining current rates given that the economic outlook had not changed significantly. The overall reaction was muted, especially with markets continuing to price in a near 80% chance that rates would be cut again at the October meeting. Overall, the Euro against the Dollar consolidated around 1.0975.
The Euro has broken the key hurdle of 1.10 at the start of the London session against the Dollar with it currently trading at 1.1015. The currency pair may end the day with solid gains if the European Central Bank minutes are digested by the market as less dovish than expected.
The minutes of the ECB’s September meeting are scheduled for release today. The central bank lowered its deposit rate by 10 basis points to 0.50% alongside announcing a fresh bond buying program, scheduled to begin from November. The stimulus announcement was quite contentious however, with Council member Robert Holzmann criticizing the zero interest rate policy stating it will unequivocally lead to less growth and lower productivity.
The Euro may pick up if the minutes underscore the growing dissent within the Governing Council. However, if the minutes show growing consensus regarding the need for more stimulus, pressure will undoubtedly mount on the common currency. More so, as the Fed’s September minutes were released yesterday, showing an increased concern among policymakers that financial markets are expecting more rate cuts than the central bank are looking to deliver this year.
Data to watch
09.30 GBP - GDP
09.30 GBP - Manufacturing Production
10.20 GBP - BOE Gov Carney Speaks
12.30 EUR - ECB Monetary Policy Meeting
13.30 USD - CPI
13.30 USD - Core CPI
Posted in Daily Market News on Oct 10 2019