A Perfect Storm for Sterling

Sterling is set for its worst week in four as weaker retail sales and Brexit stalemate combine to pile further misery on the pound.

Previous Day's Market Highlights

Sterling was once again the major mover on Thursday with losses stemming from both lower than forecast retail sales data as well as PM May’s comments that the current EU proposal for the Irish border was “unacceptable”. This has added to the downward pressure on the pound and resulted in the EU summit failing to yield a decision on the Brexit agreement. The retail sales figure came in at -0.8%, well below the consensus of -0.4%. These factors combined to cause sterling to fall 0.3% against the euro and 0.8% against the dollar, reaching its lowest against the greenback since October 5.
 
The euro edged 0.6% lower against the dollar after criticism from the EU commission over Italy’s proposed budget plans while treasury yields slipped in a flight to safety as equity markets fell. This mitigated a bond sell off amid rising inflationary fears. Wall Street’s fall failed to spark any demand for safe-haven currencies, with the yen and Swiss franc broadly unchanged. 
 
Other economic data releases were of less significance with weekly US unemployment claims and Canadian ADP employment change figures being released in line with forecasts.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1377 1.1463 1.1112 3.06%
GBP/USD 1.3033 1.3298 1.2922 2.83%
EUR/USD 1.1455 1.1815 1.1436 3.21%
GBP/AUD 1.8315 1.8735 1.7937 4.26%
GBP/NZD 1.9846 2.0481 1.9554 4.53%
GBP/CAD 1.7019 1.7286 1.6598 3.98%

Today's Market Highlights

A quieter day of data to round off the week sees little of note for either sterling, euro or US dollar traders. With this in mind, focus will likely remain on the progress of Brexit negotiations and US equity market moves after major indices dipped by over 1% on Thursday.
 
The main economic data will come from Canada, with the release of inflation and retail sales figures for September. The headline and core CPI figures (forecast 2.7% and 1.8% year-on-year respectively) will be closely watched for any impact on the Bank of Canada’s path of tightening monetary policy although they are unlikely to affect a planned hike next week. Meanwhile, retail sales are forecast to increase modestly by 0.3% compared to the previous month. There is potential for the Canadian dollar to strengthen with above forecast releases as this would imply a faster pace of interest rate rises to be necessary. 
 
While data is lacking, there are plenty of central bank speakers with the BoJ’s Kuroda, Fed voter Bostic and BoE governor Carney all scheduled to speak. Any hawkish tones would likely strengthen the respective currencies. 
 
Looking ahead to next week, the main highlight is the Bank of Canada meeting where interest rates are forecast to be increased by 25bps, with a hike largely priced in, focus will be on the accompanying rate statement to confirm forecasts of 3 rate hikes by the end of 2019. Other highlights include the ECB meeting, where rates and monetary policy are forecast to remain unchanged, and the US advance GDP release for Q3.

Today's Economic Calendar

Time Currency Release Consensus Previous
3:00am CNY GDP (y/y) 6.6% 6.7%
9:30am GBP Public Sector Net Borrowing 4.6bln 5.9bln
1:30pm CAD CPI (y/y) 2.7% 2.8%
1:30pm CAD Core CPI (y/y) 1.8% 1.7%
1:30pm CAD Retail Sales (m/m) 0.3% 0.3%

Caxton