Progress reports on a Brexit deal help the pound to rally

Sterling hit fresh highs against the EUR on the latest positive Brexit headlines. UK production data is in focus this morning.

Previous Day's Market Highlights

Reports from Dow Jones that the EU and UK had made progress on Brexit talks, particularly on the Irish border, and that a divorce deal could come as soon as Monday, led the pound to rally in the afternoon session. Sterling-euro hit fresh highs since June and sterling-dollar regained 1.31. UK Brexit Secretary Raab said negotiations with the EU have picked up and that he’s confident of reaching a deal by autumn. There was also a report that a group of 30-40 Labour MPs were prepared to defy Corbyn and endorse a Chequers-style deal.
 
President Trump’s criticism of the Fed’s pace of hikes—he doesn’t think it needs to be so fast—contributed to dollar softness, although markets continue to expect a fourth hike this year and more hikes in 2019. Elsewhere, Fed member Kaplan said he doesn’t expect a sudden rise in inflation.
 
The Canadian dollar weakened further against the pound on a fall in housing starts. Sterling-CAD later regained 1.70.  The South African rand rallied on the appointment of a new finance minister.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1451 1.1451 1.1112 2.96%
GBP/USD 1.3175 1.3298 1.2922 2.83%
EUR/USD 1.1505 1.1815 1.1436 3.21%
GBP/AUD 1.8491 1.8624 1.7937 3.69%
GBP/NZD 2.0318 2.0423 1.9554 4.26%
GBP/CAD 1.7034 1.7203 1.6598 3.52%

Today's Market Highlights

Unchanged or slightly faster Manufacturing and Industrial Production data could offer the pound some support this morning (09:30 BST), particularly if Brexit sentiment remains more positive after yesterday’s reports. We should continue to expect sterling volatility based on the latest headlines until a deal is complete. Monthly GDP may prove softer, which could be a risk for the pound, although more attention continues to be paid to the quarterly readings, and a surprise to the upside could add to sterling support.
 
In the afternoon, an increase in US Core PPI, as markets look for signs of rising prices to support rate hike expectations, could strengthen the dollar. An increase in Canadian Building Permits could strengthen the loonie but likely won’t be a huge mover.

Today's Economic Calendar

Time Currency Release Consensus Previous
9:30am GBP Industrial Production MoM (Aug) 0.1% 0.1%
9:30am GBP Industrial Production YoY (Aug) 1.0% 0.9%
9:30am GBP Manufacturing Production MoM (Aug) 0.1% -0.2%
9:30am GBP Manufacturing Production YoY (Aug) 1.1% 1.1%
9:30am GBP Goods Trade Balance (Aug) £-10.900B £-9.973B
10:00am GBP GDP MoM (Aug) 0.1% 0.3%
1:30pm USD Core PPI YoY (Sep) 2.5% 2.3%
1:30pm CAD Building Permits MoM (Aug) 0.5% -0.1%
5:15pm USD Fed's Evans Speaks
11:00pm USD Fed's Bostic Speaks
11:30pm AUD RBA Assist Gov Ellis Speaks
2:00am AUD Consumer Inflation Expectations (Oct) 4%

Caxton