What’s been happening?

Pound Sterling – UK Markets 

Easing concerns over a no-deal Brexit helped the pound sterling rise to its highest level in nearly two months against the euro while recovering yesterday’s losses vs the greenback. Citing EU sources with direct knowledge of the matter, Reuters on Thursday claimed that the UK was preparing to make a new proposal on the Irish border that was “a step in the right direction” and would make it possible to find a compromise. Although Irish Foreign Minister Simon Coveney said that he wasn’t aware of any formal proposals on backstop yet, he added that he was hoping to see the new offer next week. Coveney further stated that the Brexit withdrawal agreement was “90% agreed.” Additionally, the European Union (EU) Chief Brexit Negotiator, Michel Barnier, announced that they were in the final stage of Brexit negotiations and were working hand-in-hand with the Irish government. 

Meanwhile, while speaking at a conference on financial supervision on Thursday, the European Central Bank (ECB) policymaker, Ewald Nowotny, voiced his worries over Brexit uncertainty as he said: “In Europe, we have the challenges emerging from Brexit. I personally believe that, in relation to the potential dangers, that is in part still being underestimated.” In line with Nowotny’s comments, Philip Lanes, the ECB Governing Council member and the president of the Irish central bank, argued that economic models were underestimating potential negativity from Brexit due to added market volatility. 

US Dollar – US Markets

According to the weekly report released by the U.S. Department of Labor announced on Thursday,  the advance figure for seasonally adjusted initial claims decreased by 8,000 to 207,000 in the week ending September 29. Other data from the U.S. revealed that following a 0.5% contraction in July, new orders for manufactured goods increased $11.5 billion, or 2.3%, to $510.5 billion on a monthly basis in August to beat the analysts’ estimate of 2.1%. Despite the upbeat data, however, the US Dollar Index failed to push higher and closed the day with modest losses. Moreover, the fact that the yield on 10-year Treasury bonds on Thursday eased from the 7-year high it set yesterday weighed on the dollar as well. 

Euro – European Markets

In the absence of any significant macroeconomic data releases from the euro area, the shared currency retraced a part of its losses it recorded against the buck but remained under pressure vs the pound sterling. Nonetheless, the euro’s price action on Thursday seemed more like a technical correction rather than a deep recovery as investors remain focused on the Italian budget crisis. Earlier in the day, the Italian government announced that it was forecasting the real-GDP growth to be 1.5% in 2019, 1.6% in 2020, and 1.4% in 2021.

In the meantime, speaking at Les Champs du Possible, Benoît Cœuré, Member of the Executive Board of the ECB, said that the euro area economy was in the best shape it has been in “for many years,” and added that they were witnessing a gradual build-up in price pressures amid stronger growth and rising employment. Touching on the monetary policy outlook, Cœuré argued that they needed a bit more time to stabilise inflation around 2% and noted that the policy would remain accommodative with low rates. 

What’s coming up? 

UK: The only data featured in the UK economic docket on Friday will be the Halifax House Prices.  

US: The U.S. Department of Labor will publish its employment report that includes nonfarm payrolls, unemployment rate, average hourly earnings, and labour force participation rate. Markets expect the NFP to increase 185,000 in September following August’s impressive 201,000 growth.  

EU: Producer Price Index and factory orders from Germany and trade balance from France will be released on Friday.