Pound aligned to politics and Brexit more than economic data
Today’s session will be dominated by Germany. ZEW is set to publish its October update of economic sentiment scores for Germany and the Eurozone as a whole. The UK’s economic calendar remains relatively barren today, which will leave the Pound floundering on market sentiment once again. Sterling is becoming an increasingly politically aligned currency, witnessing more movement in response to political ties and Brexit-related news rather than economic data.
US reports on small business sentiment and the US Federal Reserve’s (Fed) multi-factor labour market conditions index will round off the September macro profile.
Pound Sterling – UK Markets
The Pound has continued its downward spiral against its major peers this morning. A surprise rise in the latest reading of British retail sales also failed to spur upward movement in the Pound. The British Retail Consortium-KPMG retail sales monitor released earlier in the session showed that the pace of spending by British consumers picked up in September after a sluggish August. The data was computed on a like-for-like basis i.e. stripping out changes in the amount of retail space open to shoppers. The unexpected rebound was mainly attributed to supermarket price wars and increase in the sale of food and big-ticket items such as fridges and TV’s, which suggests rising confidence among consumers.
Yesterday, currency traders had a bad start to the week, as the beleaguered Sterling failed to recover from Friday’s mysterious “flash crash”, amid lingering fears about the impact on Britain if it opts for a rough divorce from the European Union.
US Dollar – US Markets
The greenback is trading in positive territory against the Pound and Euro this morning. Traders have their eye on the US NFIB business optimism and labour market conditions index, scheduled to be released today. Looking ahead, market participants will keenly focus on the US advance retail sales figures, FOMC minutes and Fed Chair Janet Yellen’s speech, slated to release later in the week. The Fed minutes will offer some important insight into what data points policymakers are most focused on as they try to gauge the best time to increase interest rate in the US. At its last policy meeting, the FOMC stood pat on interest rate, with 3 members advocating a rise and 3 signaling no further action for 2016.
The US Dollar strengthened against its major peers yesterday, amid low trading volumes on account of a Columbus Day holiday. Moreover, investors digested information from the second US presidential debate, where the likelihood of a Trump presidency receded and the prospects of a win by Democrat candidate Hillary Clinton increased.
Euro – European Markets
The shared currency has extended its losses against the US Dollar this morning, as it clings on to the 1.11 handle. Coming up, the German ZEW economic sentiment survey data is scheduled for release. The indicator disappointed back in September by remaining steady, reflecting a lack of real optimism in the economy - an upward bounce is projected for the October reading. Meanwhile, the nation’s current situation score is expected to have slightly improved during the same month. Separately, the Eurozone ZEW economic sentiment is also likely to register robust growth in October.
Yesterday, the Euro ended lower against the greenback, despite optimistic data releases from the Eurozone. German trade surplus surprisingly widened in August, thanks to a solid expansion in the nation’s exports which rebounded from July’s disappointing figure. Additionally, a measure of Euro area investor confidence rose for a third straight month and at a faster than expected pace in October, notching a 4-month high level.
Other Currencies – Highlights
The Australian Dollar has retreated below the crucial 0.76 mark against the greenback this morning, after breaching the barrier overnight following a sudden surge in crude oil prices. Comments by the Russian President, Vladimir Putin, helped catapult oil prices earlier in the session after he stated that Russia is ready to join the Organisation of the Petroleum Exporting Countries in their quest to cut oil production in the hope of halting a 2-year price slide. As the trading session progressed, the Australian Dollar weakened against its US counterpart, falling in sympathy with the Kiwi Dollar and as the US Dollar strengthened across the board. The Australian Dollar’s antipodean cousin, the Kiwi Dollar, tumbled on dovish remarks from Assistant Governor of the Reserve Bank of New Zealand, John McDermott, who indicated that further monetary policy easing may be required.
On the data front, Australian home loan approvals printed negatively for the second consecutive month in August. Separately, the NAB business conditions index registered a modest increase, while the business confidence index remained steady for September.