Extra time for Brexit could be on the cards

The dollar rallies after hawkish Fed minutes as sterling treads water post-EU summit.

Previous Day's Market Highlights

The US dollar rose for the second day in a row on Wednesday after hawkish Fed meeting minutes combined with rising equity markets to fuel demand for the dollar. The Fed minutes were seen as hawkish by market participants after officials laid out their plan to continue with further interest rate rises, despite recent criticism from President Trump. In addition, policymakers stated their intention that rates may have to rise above the longer-run neutral rate to prevent the economy from overheating. Over the course of the day, the dollar was up 0.5% against sterling, euro and the yen. Treasury yields also rose, with US 10 years yielding 3.18%. 
 
Despite losing ground against the dollar, sterling was unchanged on the day against the euro with markets shrugging off a below forecast CPI figure (2.4% y/y v 2.8% y/y forecast) and focusing on the EU summit. PM May seemed to have given nothing new in terms of content to EU27 leaders, however reports were that the tone of her speech conciliatory and that of someone who wanted to reach a deal. With the backstop Irish border deal still the sticking point, EU leaders are now tentatively planning a mid-December summit to finalise a deal and possibly a 12 month extension to the transition period. Sterling showed little reaction to these headlines, largely due to no new information being presented.
 
Other data of note included as forecast US building permits and housing starts as well as EIA crude oil inventories which showed a surprise build in US crude stocks. This caused US crude (WTI) prices to fall to $69.75, a one month low.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1387 1.1463 1.1112 3.06%
GBP/USD 1.3085 1.3298 1.2922 2.83%
EUR/USD 1.1491 1.1815 1.1436 3.21%
GBP/AUD 1.8377 1.8735 1.7937 4.26%
GBP/NZD 1.9975 2.0481 1.9554 4.53%
GBP/CAD 1.7075 1.7286 1.6598 3.98%

Today's Market Highlights

Another busy day for data began early this morning with the release of the Australian employment change and unemployment rate figures at 5.6k and 5.0% respectively. The unemployment rate was 0.3% better than forecast, a 6 year low, causing the Aussie dollar to rally 0.4%. 
 
The only data of note for sterling traders today will be UK retail sales for September, forecast to decrease by 0.4% month-on-month. Sterling will likely react modestly to the data, with Brexit headlines and rumours from the negotiations likely to remain the driving force behind the pound over the short to medium term.
 
Other notable data today includes weekly US initial jobless claims, Canadian ADP employment change and the Philadelphia Fed manufacturing index. This data will likely be the main driver behind any US dollar and Canadian dollar moves today. 
 
Finally, central bank speakers today include the BoJ’s Kuroda in addition to Fed voters Quarles and Bullard. The latter two speeches may have little significance to the market unless their tone differs significantly to the Fed minutes released yesterday.

Today's Economic Calendar

Time Currency Release Consensus Previous
1:30am AUD Employment Change 15.0k 44.0k
1:30am AUD Unemployment Rate 5.3% 5.3%
9:30am GBP Retail Sales (m/m) -0.8% 0.3%
1:30pm USD Philadelphia Fed Manufacturing Index 20.0 22.9
1:30pm USD Unemployment Claims 206k 214k

Caxton