What’s been happening?

Pound Sterling – UK Markets 

The pound sterling rose to its highest level against the euro since late June on Friday and continued to gather strength vs the dollar to close higher on a weekly basis. Although there were no macroeconomic data releases from the UK that boosted the demand for the GBP, easing concerns over a no deal Brexit following the latest headlines helped the currency gain traction. Earlier in the day, British Brexit Secretary, Dominic Raab, announced that they would set out their backstop alternative that would preserve the integrity of the UK and added that the new regulatory barrier would be “created between Northern Ireland and the rest of the UK unless the Northern Ireland executive assembly agrees.”

Later in the day, citing two EU diplomats with direct knowledge of the talks, Bloomberg claimed that the EU was getting ready to offer the UK a `super-charged' free-trade deal. According to the report, the EU’s vision for the future relationship with the UK will include about 30-40% of Prime Minister Theresa May’s offer for a wide-ranging trade and security deal.  

US Dollar – US Markets

The data released by the U.S. Bureau of Labor Statistics on Friday showed that the total nonfarm employment increased by 134,000 in September to fall short of the market expectation of 185,000. Further details of the report showed that the unemployment rate fell to its lowest level since 1969 at 3.7% and August’s NFP reading got revised up to 270,000 from 201,000. Finally, wage inflation, as measured by the annual average hourly earnings, ticked down to 2.8% from 2.9% seen in August and the labour force participation rate stayed unchanged at 62.7%. 

Even though Friday’s employment report allowed the CME Group FedWatch Tool’s December rate hike probability to remain steady near 77%, the US Dollar Index, which measures the buck against a basket of six major currencies, struggled to push higher. Nevertheless, the U.S. Treasury Bond yields’ impressive rally throughout the week helped the index finish the week at its highest level in six weeks.   

Euro – European Markets

The data from Germany on Friday revealed that factory orders rebounded with a robust 2% growth on a monthly basis in August following July’s disappointing 0.9% decline. Other data showed that PPI rose 0.3% and 3.1% in Germany on a monthly and yearly basis, respectively, both data coming in slightly above analysts’ estimates. In the meantime, according to MINEFA, France’s trade deficit rose to €5.6 billion in August from €3.43 billion in July.

Meanwhile, speaking at the opening ceremony of the XXIX Edition of the LLM in EU Law of the University Carlos III of Madrid, the European Central Bank’s newly appointed vice-president Luis de Guindos, said that the economic growth in the Euro area was solid and broad-based. “Top priority in this area is for national policymakers to build up fiscal buffers to ensure policy space for future downturns,” de Guindos added. Without naming Italy, de Guindos noted that the Stability and Growth Pact of the EU critical for “safeguarding sound fiscal positions.” 

What’s coming up? 

UK: There won’t be any macroeconomic data releases from the U.K.  

US: The U.S. markets will be observing the Columbus Day holiday on Monday.  

EU: Industrial production from Germany and Sentix Investor Confidence report from the euro area will be featured in the European economic docket.