Confidence in the global economic outlook remained fragile.

Confidence in the global economic outlook remained fragile with equity markets posting net losses. Bond yields moved lower, but there was a recovery on Thursday.

The dollar was held in narrow ranges with a retreat from 3-week highs as the Euro recovered some losses as political developments dominated.

The yen and Swiss franc maintained a firm tone on concerns over the global outlook.

Sterling recovered sharply from intra-day lows on reports of positive rhetoric on the Northern Ireland backstop from German Chancellor Merkel.

Oil prices were boosted by a larger than expected API inventory draw. Precious metals were resilient as underlying demand remained firm.

The Euro was hampered by underlying Italian political uncertainty as Prime Minister Conte tendered his resignation. He also criticised Lega leader Salvini with comments that the August political crisis is likely to pave the way for Autumn elections.

The UK CBI industrial orders index strengthened to -13 for August from -34 previously and above consensus forecasts of -25 as the decline in export orders also eased, although underlying confidence remained fragile. Sterling came under renewed pressure as political rhetoric sapped confidence, especially after EU Council President Tusk insisted that the Northern Ireland backstop must remain. GBP/USD declined to near 1.2060 while GBP/EUR advanced to 1.1000.

Prime Minister Johnson maintained an optimistic tone and there was a sharp Sterling reversal later in the day following reported comments from Chancellor Merkel that she was willing to look at practical solutions as an alternative to the backstop. GBP/EUR held around 1.1000 while GBP/USD rallied sharply to near 1.2170.

There were also reports that the Bank of England will not name a new Governor until after Brexit with Carney due to leave at the end of January. Underlying confidence in the political outlook remained weak and Sterling unable to sustain the gains with GBP/USD below 1.2150 and markets will monitor Wednesday’s meeting between Johnson and Merkel very closely.

Economic Calendar