What’s been happening?

Pound Sterling – UK Markets 

For the third straight day, boosted by the optimistic Brexit headlines, the pound sterling recorded gains against both the euro and the dollar on Wednesday. Delivering his remarks on Brexit negotiations, Irish Prime Minister Leo Varadkar stated that it was possible to reach an agreement in November and repeated that they were willing to consider a review clause in the backstop. Additionally, citing unnamed EU sources, Reuters explained that it was necessary to have a breakthrough this week or early next week for the EU Council President Donald Tusk to call a special Brexit summit in November. “EU & UK Brexit negotiators looking at linking extension of the transition period with Irish backstop to make the latter more palatable to Britain,” Reuters wrote. In the meantime, several news outlets reported that ministers were getting ready to go over the draft Brexit Withdrawal Agreement that is currently agreed upon. However, the document doesn’t include a clause on the Irish backstop and it’s still unclear whether or not the Parliament will back it up.

The only data from the UK on Wednesday revealed that the Halifax House Price Index released by the HBOS rebounded with a 0.7% increase in October after declining 1.3% in September and beat the experts’ estimate of 0.3%.

US Dollar – US Markets

With Donald Trump’s Republicans losing control of the House of Representatives in midterm elections, the dollar struggled to find demand and weakened against the euro and the pound sterling during the first half of the day on Tuesday. Despite the dollar’s negative reaction, major equity indexes in the United States cheered the election results and rose sharply to reflect an improved market sentiment. Commenting on the midterm elections, President Trump noted that Republicans were able to increase the number of seats in the Senate compared to six seats President Obama’s Democrats lost in 2014 midterm elections. Trump repeated that the economy was booming “like never before” and added that they would continue to work on infrastructure and healthcare reform.

According to the data published by the Board of Governors of the Federal Reserve, the total amount of consumer credit increased $10.92 billion in September to fall short of the market expectation of $16.5 billion. The US Dollar Index, which measures the buck’s value against a basket of six major currencies, closed the day with modest losses ahead of tomorrow’s critical Fed meeting.           

Euro – European Markets

The Eurostat on Wednesday announced that retail sales in the euro area stayed unchanged on a monthly basis in September and dragged the annual growth rate to 0.8% from 2.2% recorded in August. “Among Member States for which data are available, the highest yearly increases in the total retail trade volume were registered in Ireland (+10.2%), Lithuania (+7.9%) and Poland (+6.5%). The largest decreases were observed in Belgium (-2.2%), Spain and Austria (both -1.5%),” the press release read. On the other hand, the Destatis reported that industrial production in Germany expanded 0.2% and 0.8% on a monthly and yearly basis, respectively.

Meanwhile, speaking to reporters ahead of the critical confidence vote in the Italian Senate over a contested decree on security and immigration, Italian Deputy Prime Minister (PM) Matteo Salvini said that government was “absolutely not at risk.” On the other hand, Italy’s Statistics Office, ISTAT, published a statement that showed that they were expecting the economy to lose momentum in the coming months amid persistent weakness in the economic cycle. The shared currency rose to 1.15 against the dollar for the first time in two weeks while staying indecisive vs the British pound.  

What’s coming up? 

UK: Another eventless day in the UK economic docket will allow investors to stay focused on Brexit headlines.

US: The U.S. Bureau of Labor Statistics will publish the weekly jobless claims data on Thursday. Later in the evening, the Fed will announce its interest rate decision and release the policy statement. Although markets don’t expect any changes in the monetary policy, they will look for hints that could affect the probability of a 25 bps rate hike in December.     

EU: The European Central Bank will publish its Economic Bulletin on Thursday alongside with the European Commission’s updated Economic Growth Forecasts. Furthermore, the Destatis will release trade balance figures from Germany.