Pound Sterling Extends Gains, The US Dollar Stays Calm Ahead of FOMC
What’s been happening?
Pound Sterling – UK Markets
The pound sterling outperformed its rivals for the second straight day on Tuesday and continued to retrace the losses it recorded against the euro and the dollar last Friday. Earlier today, touching on Brexit negotiations, Germany’s Chancellor Angela Merkel said that an agreement could come in October and stated that the UK couldn’t belong to the single market if it accepts one principle and ignores the other three. Later in the day, British Prime Minister Theresa May spoke to reporters on her way to the UN General Assembly in New York and reiterated a no-deal Brexit was better than a bad deal and explained that any agreement that would break up the integrity of the UK would be considered a bad deal. May further added that she was confident of keeping the Brexit timetable, but they needed to see the EU’s counter proposals on the Chequers plan to end the impasses.
Meanwhile, in a speech at the Imperial College Business School, in London, the Bank of England (BOE) MPC Board Member Gertjan Vlieghe said that more communication from the BoE could be expected as they move closer to start unwinding the QE and added that the bank’s goal should be communicated well and the QE should be tapered gradually.
US Dollar – US Markets
On Tuesday, the US Dollar Index showed a market action similar to the one it had on Monday as it fell during the European trading hours before staging a modest recovery later in the day. Ahead of tomorrow’s critical FOMC meeting, the greenback failed to take advantage of the upbeat macroeconomic data releases from the United States. The monthly report released by The Conference Board showed that the Consumer Confidence Index improved to 138.4 in September from 134.7 in August to beat the market expectation of 132.1. “After a considerable improvement in August, Consumer Confidence increased further in September and hovers at an 18-year high. The September reading is not far from the all-time high of 144.7 reached in 2000,” Lynn Franco, Director of Economic Indicators at The Conference Board said and added: “Consumers’ assessment of current conditions remains extremely favourable, bolstered by a strong economy and robust job growth.”
Other data showed revealed that the Federal Housing Finance Agency’s (FHFA) seasonally adjusted monthly House Price Index (HPI) rose 0.2% in July to come in line with the market consensus. Finally, the Federal Reserve Bank of Richmond announced that the business activity in the Fifth District manufacturing sector expanded at a more robust pace than expected with the headline composite index advancing to 29 in September from 24 in August compared to experts’ estimate of 22.
Euro – European Markets
Citing sources with direct knowledge of the matter, Reuters on Tuesday reported that the German Economic Institue was expected to lower 2019 GDP growth expectations to 1.9% from 2.% and the 2018 growth forecast to 1.7% from 2.2%. Meanwhile, commenting on ECB President Draghi’s statement before the ECON committee of the European Parliament on Monday, the European Central Bank Chief Economist Peter Praet said that Draghi’s remarks were nothing new and explained that it would take months before higher wages would have a notable impact on the inflation to force the shared currency reverse it gains it recorded against its peers yesterday. During their prepared speeches on Tuesday, Peter Praet and the ECB board member Benoît Cœuré didn’t comment on the near-term monetary policy outlook.
What’s coming up?
UK: The British Bankers' Association (BBA) will publish the August Mortgage Approvals data, and the Confederation of British Industry will release the findings of the Distributive Trades Survey (realised).
US: The FOMC will announce its interest rate decision on Wednesday, which is expected to be hiked by 25 bps to 2.25%, and publish its monetary policy statement alongside with the updated economic projections. Later, FOMC Chairman Jerome Powell will deliver his prepared remarks and respond to questions from the press in a conference.
EU: The European Central Bank’s non-monetary policy meeting will be the only event in the European economic docket.