Sterling moved sharply higher to 5-month highs on reports that a Brexit deal was close.
Risk conditions strengthened on Tuesday, driven to an important extent by hopes that Brexit could be resolved which would help stabilise global trade conditions.
Equity markets made net gains, although US-China reservations capped gains. The dollar was held in relatively tight ranges with USD/JPY posting 2-month highs before fading slightly.
Sterling moved sharply higher to 5-month highs on reports that a Brexit deal was close with EUR/USD testing 1.1050 as European sentiment improved.
Commodity currencies were unable to make headway amid underlying US-China trade reservations. Oil prices failed to gain traction amid underlying demand concerns. Stronger risk appetite undermined demand for precious metals.
The Euro was unable to make any headway and dipped lower into the New York open with EUR/USD retreating to below 1.1000 as the US currency also recovered ground amid a lack of underlying selling pressure.
UK unemployment increased to 3.9% from 3.8% in the three months to August and slightly above expectations while employment declined in the latest 3-month period which suggested a weaker labour market. Headline average earnings growth slowed to 3.8% from a revised 3.9%. Bank of England’s Vlieghe stated that there would be a case for additional monetary stimulus if there was entrenched Brexit uncertainty. The comments and labour-market data curbed Sterling support to some extent, although politics dominated.
After a spike in early Europe following EU Chief Negotiator Barnier’s comments that a deal was possible this week, Sterling faded following reports that an agreement needed to be reached by the end of Tuesday. GBP/USD consolidated below 1.2650 early in New York with GBP/EUR still moving higher towards 1.1600.
Late in Europe, sources reported that the EU and UK were closing in on a deal which triggered a fresh Sterling spike higher. Although there were still cautious remarks, overall confidence in a deal gradually increased. GBP/USD pushed to 5-month highs near 1.2800 with GBP/EUR also rallying to 5-month highs near 1.1600.
No deal was secured on Tuesday and there was also unease whether any agreement would be approved in the House of Commons and Sterling edged lower. There will inevitably be high volatility on Wednesday with crucial political developments.
Economic Calendar
| Expected | Previous | ||
|---|---|---|---|
| 09:30 | GBP CPI (M/M)(SEP) | 0.50% | 0.40% |
| 09:30 | GBP CPI (Y/Y)(SEP) | 1.90% | 1.70% |
| 09:30 | GBP PPI Core Output (Y/Y)(SEP) | 200.00% | 2 |
| 09:30 | GBP PPI Output (Y/Y)(SEP) | 1.70% | 1.60% |
| 09:30 | GBP PPI Input (Y/Y)(SEP) | -0.50% | -0.80% |
| 09:30 | GBP PPI Input (M/M)(SEP) | -0.20% | -0.10% |
| 10:00 | CPI (EU Norm) Prelim MM(OCT) | 0.40% | -0.50% |
| 10:00 | CPI (EU Norm) Prelim YY(OCT) | 0.50% | 0.40% |
| 10:00 | CPI (EU Norm) Final MM*(OCT) | - | 1.50% |
| 10:00 | CPI (EU Norm) Final YY*(SEP) | 0.50% | 0.30% |
| 10:00 | Euro-Zone Core CPI (Y/Y)(SEP 01) | 0.90% | 1.00% |
| 10:00 | Euro-Zone CPI (Y/Y)(SEP) | 1.00% | 0.90% |
| 10:00 | Euro-Zone CPI (M/M)(SEP) | 0.20% | 0.10% |
| 10:00 | Euro-Zone Trade Balance(AUG) | 17.4B | 24.8B |
| 12:00 | USD MBA Mortgage Applications | - | 5.40% |
| 13:30 | USD Core Retail Sales (M/M)(SEP) | 0.10% | 1.00% |
| 13:30 | USD Advance Retail Sales (M/M)(SEP) | 0.20% | 0.40% |
| 13:30 | Bank of Canada Core CPI (Y/Y)(SEP) | - | 1.90% |
| 13:30 | Bank of Canada Core CPI (M/M)(SEP) | - | -0.10% |
| 13:30 | CAD CPI (M/M)(SEP) | - | -0.10% |
| 13:30 | CAD CPI (Y/Y)(SEP) | 2.00% | 1.90% |
| 13:30 | CAD Foreign Securities Purchase(AUG) | - | -1.17B |
| 15:00 | USD Business Inventories(AUG) | 0.30% | 0.40% |
| 15:00 | NAHB Housing Market Index(OCT) | 66 | 68 |
| 15:30 | USD Crude Oil Inventories | 1.413M | 2.927M |
| 21:00 | USD TIC Net Long-Term(AUG) | - | 84.3B |