GBP/USD Falls Below 1.30, Reversing Rally

GBP/USD fell below 1.30 this morning, fully reversing yesterday's rally. Key today are UK Construction PMI & a speech from Fed Chair Powell.

Previous Day's Market Highlights

Sterling saw a knee-jerk jump higher yesterday on reports that the UK would compromise on the Irish border issue. This has been one of the more contentious points during negotiations, so a compromise here could signal that a deal is closer to being reached than previously thought. However, the reports are not yet a concrete step and, until a deal has been agreed, negotiations will continue to pose a downside risk to the pound. It jumped around 0.8% against the dollar and 0.6% against the euro before retracing most of those gains. Cable fell back below 1.31.
 
The Reserve Bank of Australia kept interest rates on hold at 1.50% as was expected. Following the meeting, the Aussie briefly gained but was overall little changed since the statement was little changed.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1267 1.1302 1.1047 2.26%
GBP/USD 1.3009 1.3298 1.2785 3.86%
EUR/USD 1.1538 1.1815 1.1526 2.45%
GBP/AUD 1.8066 1.8401 1.7781 3.37%
GBP/NZD 1.9736 2.0031 1.9435 2.98%
GBP/CAD 1.6680 1.7190 1.6796 2.29%

Today's Market Highlights

Risk-off sentiment has driven demand for the dollar, pushing sterling-dollar below 1.30 this morning for the first time since 12 September and euro-dollar to the lowest since 9 September—in turn some of its lowest levels since mid-August.
 
The economic calendar is relatively quiet for most of the day. The UK releases the Construction PMI this morning (09:30 BST). Another softer reading could weaken the pound, which will also remain vulnerable to the latest Brexit headlines, particularly with the October EU Summit rapidly approaching.
 
Later in the day, markets will keep an eye on speeches from the Fed’s Quarles (15:00) and Fed Chair Powell (17:45). Powell will be speaking on the outlook for employment and inflation; upbeat comments may strengthen the dollar but if little new is said, this could cap any potential gains.

Today's Economic Calendar

Time Currency Release Consensus Previous
9:30am GBP Markit Construction PMI (Sep) 52.5 52.9
10:00am EUR Producer Price Index YoY (Aug) 3.8% 4.0%
3:00pm USD Fed's Quarles Speaks
NZD Global Dairy Trade Price Index -1.8%
5:45pm USD Fed Chair Powell Speaks
2:30am AUD Building Permits MoM (Jul) -2.5% -5.2%

Caxton