Sterling update ahead of Brexit summit today 19th and 20th October 2017

Yesterday`s Asia session 18th October, saw Sterling had eased and extended losses across the board, undermined by words of caution from BoE MPC members and a survey that showed UK companies were freezing marketing spends as economic uncertainty rises.  Cable traded flat at 1.3186 having hit a high of 1.3337 last Friday 13th.

Digesting UK CPIs which showed year-on-year core inflation at 3% and the Purchase Price Index (PPI) beating expectations, printing 8.4% (all BoE hike supportive), investors were looking ahead to UK employment and wages prints yesterday 18th.  Wages beat expectations at 2.2% inc bonuses and 2.1% ex-bonuses. Good prints but still falling short of the inflation rate, implying continued pressure on household budgets. The Claimant Count change came in at a disappointing 1.7k with the overall unemployment rate remaining at 42-year lows (1975). Looking deeper into the report, jobs growth has decelerated in the 3 months to August. Generally, the data shows that slack in the jobs market continues to be used up, albeit at a slower pace and high levels of vacancies continue to confirm job growth can be expected. The report helps support the likelihood of a BoE hike as the labour market still seems to be tightening

Sterling had eased again across the board in the face of a strengthening USD prompted by speculation on who will fill the Fed Chair and on the UK Jobs numbers.  However, the drop to a low of 1.3138 was held by a fade of USD strength caused by poor US housing numbers and the prospect of a BoE hike in November once the jobs report had been fully digested.  Markets latest expectations for a BoE hike increased to 83% from 77% prior to UK inflation numbers. Cable rallied to the 1.32 handle.

This morning saw Cable rallying in Asia to a high of 1.32279 at which point some profit taking and repositioning took place ahead of Retail sales which printed well below expectations with Core MoM  -0.8% and YoY 1.2%.  Big misses across the board.  Cable slipped to 1.3128 where it is currently trying to consolidate losses, still looking heavy.

If the disappointments on UK data has not been enough, the pressure remains on Sterling and especially Cable/EURGBP as Mrs May and David Davis visit Brussels ahead of the EU summit with a carrot to tempt EU leaders to allow talks to proceed onto trade talks while negotiating teams put together final deals on a Transition period, ex-pats and Northern Ireland.

Mrs May is being urged to “walk out” of the Brexit process if the EU ignore her offer (carrot).

All-in-all, a massive day for Sterling and the Euro on the 30th anniversary of Black Monday

Dominic Chu of CNBC has Black Monday here and well worth the watch:

BBC has more here on the Summit.

Read more pieces from The Brexit Review here.


Si Heath
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