Sterling made further net gains on hopes for a Brexit deal.

Weaker than expected US retail sales data helped undermine the dollar with an overall retreat to 4-week lows.

Hopes for a Brexit deal also underpinned the Euro with EUR/USD at 1-month highs as German yields increased. Sterling made further net gains on hopes for a Brexit deal, but retreated from its best levels.

Equity markets were little changed as US-China trade caution continued.

Commodity currencies recovered ground on US losses with firm labour-market data underpinning the Australian dollar. Oil prices were undermined by a sharp build in crude inventories according to the API data. Precious metals were protected by a soft dollar, but net demand remained subdued.

Political developments also had a substantial impact with Brexit developments watched closely. The Euro was boosted by optimism that a Brexit deal was within reach with a EUR/USD break above 1.1050 also a significant factor. German yields also increased with yield spreads moving in favour of the Euro as EUR/USD pushed to around 1-month highs around 1.1080. The US dollar lost ground against commodity currencies and the currency index declined to 4-week lows.

The headline UK CPI inflation reading was unchanged at 1.7% compared with market expectations of a marginal increase to 1.8% while the underlying rate matched consensus forecasts with an increase to 1.7% from 1.5%. Sterling dipped lower in reaction to the data, although the overall reaction was limited as political developments continued to dominate.

The UK currency pushed sharply higher after EU Chief Negotiator Barnier stated that a deal was possible on Wednesday and there were further net gains as confidence in a deal increased. Volatility remained high, especially with important doubts whether any deal would be approved in parliament. In this context, the position of the Northern Ireland DUP remained crucial and uncertain. After the European close, sources indicated that nearly all issues had been resolved.

GBP/USD advanced to a peak around 1.2870 before a retreat as the UK government stated that no deal would be reached on Wednesday. Sources indicated that the text was ready, but GBP/USD dipped below 1.2800 to near 1.2750 in early Europe as the DUP stated that they were still unable to support the deal with GBP/EUR rallied above 1.1600 from 1.1481 lows. Further high volatility is inevitable as the Summit gets underway.

Economic Calendar

07:00CHF Trade Balance(SEP)2.470B1.720B
09:30GBP Retail Sales ex-Fuel (M/M)(SEP)--0.30%
09:30GBP Retail Sales ex-Fuel (Y/Y)(SEP)2.60%2.20%
09:30GBP Retail Sales (Y/Y)(SEP)-2.70%
09:30GBP Retail Sales (M/M)(SEP)--0.20%
09:30BoE Credit Conditions Survey--
13:30USD Building Permits(SEP)1.300K1.425K
13:30USD Building Permits (M/M)(SEP)-8.20%
13:30USD Housing Starts(SEP)1.250M1.364M
13:30USD Housing Starts (M/M)(SEP)-12.30%
13:30USD Philadelphia Fed. Manufacturing Index(OCT)1112
13:30CAD Manufacturing Shipments (M/M)(AUG)--1.30%
13:30USD Initial Jobless Claims-210K
14:15USD Industrial Production(SEP)0.20%0.60%
14:15USD Capacity Utilization(SEP)-77.90%

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.