Sterling responds to Brexit stalemate

Sterling slides in early trading as Brexit negotiations reach an impasse ahead of a key week for the Pound.

Previous Day's Market Highlights

The best performing major currency last week was the Japanese Yen with significant demand coming from market participants looking for a safe haven asset as a risk off mood prevailed after the steep sell off in global equity markets. This flight to safety also saw US 10 year yields touching their lowest weekly levels at 3.13% late in the week, after reaching a multi-year high of 3.23% on Monday. As a safe haven currency, the Yen usually sees significant demand in times of volatility which helped to push USD/JPY to its lowest levels since mid-September.
 
Sterling had a mixed week, gaining modestly against the US and Canadian dollar and losing ground against the Aussie and Kiwi dollars. The gains against the Canadian dollar are largely down to weaker Canadian oil prices which may act as a headwind on economic growth, while the Aussie and Kiwi experienced their best weeks’ against Sterling for a month.
 
The macroeconomic calendar was light with only UK GDP and US CPI inflation of note, both missed forecast to the downside by 0.1% m/m. Market participants largely shrugged off these data misses with focus being away from FX and shifting towards rising treasury yields, tumbling global equity markets and increasing trade tensions between the US and China.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1343 1.1463 1.1112 3.06%
GBP/USD 1.3116 1.3298 1.2922 2.83%
EUR/USD 1.1562 1.1815 1.1436 3.21%
GBP/AUD 1.8426 1.8735 1.7937 4.26%
GBP/NZD 2.0138 2.0481 1.9554 4.53%
GBP/CAD 1.7079 1.7286 1.6598 3.98%

Today's Market Highlights

A busier week on the economic calendar begins today with the release of US retail sales data for September (forecast 0.7% m/m) as well as New Zealand CPI inflation (forecast 0.7% q/q). Market participants will also be paying close attention to the US Treasury Currency Report with the focus being on the potential for China to be named as a currency manipulator as part of the ongoing trade war between the two nations.
 
In addition, it is set to be an important week for Sterling with the release of labour market, inflation and retail sales data on Tuesday, Wednesday and Thursday respectively. These indicators are all forecast to remain steady, barring inflation where the forecast is for a 0.1% downtick to 2.6% y/y. This week is also pivotal for the Brexit negotiations ahead of an European Council summit on Wednesday. Fears of a no-deal Brexit are now increasing after talks between the UK and EU were at a stalemate on Sunday evening. This has caused Sterling to lose around 0.4% against the Dollar in early Monday trading. Price action in Sterling pairings will likely remain choppy throughout the week as Brexit headlines remain the main driver of the pound
 
Other highlights this week include the release of minutes from the latest Fed meeting and Eurozone inflation figures on Wednesday as well as Canadian inflation data on Friday. Focus is also likely to remain on global equity markets as traders await to see whether last week’s rout is over or whether further turmoil is to come. 

Today's Economic Calendar

Time Currency Release Consensus Previous
1:00pm USD Retail Sales (m/m) 0.7% 0.1%
1:00pm USD Core Retail Sales (m/m) 0.4% 0.3%
3:30pm CAD BOC Business Outlook Survey
10:45pm NZD CPI (q/q) 0.7% 0.4%

Caxton