What’s been happening?

Pound Sterling – UK Markets 

In the absence of Brexit-related headlines during the first half of the day, the pound sterling took advantage of the risk-positive environment and staged a decisive rebound to erase some of the recent losses it suffered against the dollar and the euro.

Later in the day, a letter sent to Hillary Benn, Chair of the Exiting the EU Committee, by British Brexit Secretary Dominic Raab sparked the hopes of the UK reaching an orderly Brexit agreement with the EU and helped the British pound to continue to gather strength. Responding to Benn’s request for an update on the negotiation progress, “I would be happy to give evidence to the Committee when a deal is finalised, and currently expect 21 November to be suitable," Raab said. While speaking to reporters, British Prime Minister Theresa May’s spokesman reiterated that they were aiming to reach a deal as soon as possible and added that the final agreement on Brexit was expected to involve the EU council. When asked about the Raab’s remarks in the letter, “I cannot go beyond previous comments on wanting a Brexit deal ASAP,” the spokesman said.   

US Dollar – US Markets

The monthly report published by the ADP on Wednesday showed that the private sector employment increased by 227,000 jobs from September to October to beat the analysts’ estimate of 189,000. Commenting on the data,  “The job market bounced back strongly last month despite being hit by back-to-back hurricanes. Testimonial to the robust employment picture is the broad-based gains in jobs across industries. The only blemish is the struggles small businesses are having filling open job positions,” Mark Zandi, chief economist of Moody’s Analytics, said. Additionally, the U.S. Bureau of Labor Statistics reported that the employment cost index increased 0.8% in the third quarter. ”Wages and salaries (which make up about 70 percent of compensation costs) increased 0.9 percent and benefit costs (which make up the remaining 30 percent of compensation) increased 0.4 percent from June 2018,” the BLS noted.

The last data of the day from the U.S. revealed that the business activity in the Chicago area continued to expand at a healthy pace in October with the PMI coming in at 58.4. Although this figure fell short of the market expectation of 60, the greenback extended its rally in the second half of the day.

Boosted by the data, the US Dollar Index rose to its highest level since June of 2017 at 97.20 and closed the day higher for the ninth time in the last 12 trading days. For the month, the index added a little over 2%.     

Euro – European Markets

The Eurostat reported that the unemployment rate in the euro area stayed unchanged at 8.1% in September as anticipated. Moreover, the annual inflation, measured by the CPI, ticked up to 2.2% in October to match the market consensus. Finally, the core-CPI, which excludes volatile food and energy prices, advanced to 1.1% from 0.9% to surpass the experts’ forecast of 1%. These data, however, failed to help the shared currency limit its losses against its rivals as yesterday’s upbeat inflation report from Germany, the euro area’s biggest economy, eliminated the surprise factor.

Later in the day, commenting on Italy’s budget crisis, the European Central Bank Governing Council member and the Bank of Italy Governor, Ignazio Visco said that higher spending would allow Italy to narrow the growth gap with the EU and explained that low productivity was the primary reason for the slow economic expansion in the country. “Widening of Italy/Germany spread reflects the risk of default and redenomination in equal measures,” Visco further added. In the meantime, while delivering a speech at a conference in Tallinn, Estonia, the ECB Governing Council member Ardo Hansson argued that the ECB should not read too much into weaker-than-expected GDP data and should wait for its own staff projections due in December before jumping to conclusions. “These were preliminary numbers, maybe they were a bit slower than some expected. We have to wait and see what was behind this,” Hansson noted.

What’s coming up? 

UK: The Bank of England will announce its interest rate decision and publish its monetary policy statement alongside with the quarterly inflation report. Moreover, the IHS Markit will release its October (final) Manufacturing PMI data. BoE Governor Mark Carney will appear in a press conference to respond to questions later in the day.

US: Weekly initial jobless claims, nonfarm productivity, unit labour costs, and the IHS Markit and the ISM’s Manufacturing PMI reports will be featured in the U.S. economic docket on Thursday.     

EU: There won’t be any macroeconomic data releases from the euro area.