Juncker Wants to do a Deal

Sterling surges to 2 month highs as Juncker says ‘we can have a deal’; while the dollar declines as markets mull the Fed’s policy outlook.

Previous Day's Market Highlights

Sterling surged in late-afternoon trading on Thursday, hitting a 2-month high against the dollar, as Brexit sentiment improved after comments from European Commission President Juncker indicated an openness to reaching an agreement with the UK. Juncker stated his belief that the two parties 'can have a deal' and emphasised that he is 'doing everything to get a deal'. These tentative signs that the UK and EU may be inching closer to common ground, along with reports that UK officials had submitted papers outlining possible alternative solutions to the Irish backstop, were seized upon by the market as further signs that the risk of a no-deal exit may be receding. Of course, as the perceived risk of no-deal fell, sterling rallied. Having meandered for most of the day, sterling shot through the stiff resistance at $1.25 after Juncker's interview, settling around 0.65% higher against the greenback. Against the euro, the pound traded 0.4% higher, touching its highest levels since mid-May.

Sterling largely ignored the BoE's latest policy decision, which was as much of a non-event as a central bank meeting can be. Policymakers maintained interest rates at 0.75%, while also reiterating that 'gradual and limited' tightening will be needed in the event of an orderly Brexit. Furthermore, as is now familiar, the Bank repeated that the policy response to a no-deal exit would not be automatic. With the vote to maintain rates unanimous, and the statement largely unchanged from August's meeting, the BoE show no signs of joining the global easing party just yet. 

Elsewhere, a couple of other central bank decisions were announced, as the monetary policy bonanza continued. Firstly, the Norges Bank remains the 'last hawk in town', announcing their 4th 25bps rate hike in 12 months, bringing interest rates to 1.5%. Policymakers also see a 40% chance of a hike next year, should the economy evolve in line with expectations. These factors combined to keep the Norwegian krone well-supported. Meanwhile, the Swiss National Bank (SNB) maintained rates at -0.75%, though surprised markets by continuing to see the franc as 'highly valued'. With the SNB primarily concerned with preventing the CHF from significantly appreciating, due to the open nature of the economy, this comment signals their relative comfort with current exchange rates, resulting in the franc adding more than 0.5% over the course of the day.

Meanwhile, the dollar chalked up a modest decline, as market participants continued to react to the Fed's hawkish rate cut on Wednesday evening. The greenback settled 0.25% lower against a basket of peers, possibly as a result of market participants realising that further easing may be on the horizon should global risks fail to subside. Thursday's economic releases were of little interest, though existing home sales hitting a 17-month high in August bodes well for the housing market going forwards. The euro was one of a number of beneficiaries of the weaker dollar, with the common currency adding around 0.25% over the course of the day; the Canadian and Kiwi dollars chalked up similar gains. In contrast, as mentioned in Thursday's Note, the Aussie dollar struck a softer tone after disappointing labour market data, while the Japanese yen held firm after the BoJ left policy unchanged.

Away from FX, equity markets on both sides of the Atlantic were buoyed by the Fed's interest rate cut. The pan-European Stoxx 600 closed 0.6% higher, while the US benchmark S&P 500 added 0.28%, edging ever-closer to a fresh record-high. Finally, concerns over supply risks continued to keep oil prices well-supported. Global benchmark Brent settled 1.26% higher, while US WTI crude added 0.03%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1360 1.1364 1.0930 3.82%
GBP/USD 1.2560 1.2566 1.1958 4.84%
EUR/USD 1.1055 1.1164 1.0926 2.13%
GBP/AUD 1.8465 1.8492 1.7792 3.79%
GBP/NZD 1.9945 1.9969 1.8996 4.87%
GBP/CAD 1.6660 1.6670 1.5956 4.28%

Today's Market Highlights

What's been another whirlwind week for financial markets - which has included an oil price spike, liquidity squeeze, the Fed cutting rates and geopolitical themes rumbling on - concludes with a relatively barren economic calendar. No major releases are  due from either the UK or US today, with the calendar highlight set to be July's retail sales figures from Canada. Headline sales are set for their fastest increase since March, at 0.6% MoM, while sales excluding automobiles are expected at a healthy 0.3% MoM. Figures in line with these expectations would represent a solid pace of consumer spending, something which should underpin economic growth in the third quarter if the trend continues. This should support the Canadian dollar, and keep any policy loosening from the BoC off the table for now. Today's only other notable release is September's preliminary eurozone consumer confidence report, expected to show sentiment remaining firmly in pessimistic territory.

Likely of more interest than economic releases, will be today's slate of Federal Reserve speakers. With markets still grappling with the likely policy outlook, after the dot plot showed a median expectation of no further cuts this year, today's speakers may provide some further clarity. Markets will hear from dovish New York Fed President Williams, the Vice Chair of the FOMC, in addition to hawkish Boston Fed President Rosengren, who dissented in voting for rates to remain unchanged at Wednesday's meeting. Speaking of dissent, be on alert for remarks from FOMC voters George and Bullard, with it being somewhat customary for dissenters to explain their action after the policy meeting.

Looking ahead to next week, geopolitical issues will likely remain front and centre, with the data calendar sparsely populated. Markets will continue to focus on the US-China trade war and developing Middle East tensions, in addition to Brexit, with the Supreme Court's ruling on the prorogation of Parliament due early in the week. Meanwhile, markets will pay close attention to the RBNZ's latest policy decision, expected to result in no change to monetary policy, as well as parsing minutes from the BoJ's recent policy meeting for any signs of additional stimulus being delivered. On the data front, September's flash eurozone PMIs highlight the calendar, while US consumer confidence and core PCE figures will also be eyed. 

Today's Economic Calendar

Time Currency Release Consensus Previous
1:30pm CAD Retail Sales (MoM - Jul) 0.6% 0.0%
1:30pm CAD Retail Sales ex Autos (MoM - Jul) 0.3% 0.9%
3:00pm EUR Prelim. Consumer Confidence (Sep) -7.0 -7.1