Sterling struggled through another day as GBP selling drove the bulk of market sentiment. Selling in GBPUSD began the negativity which quickly spread across GBP pairs, GBPUSD eventually trading below 1.2100 before bouncing, while GBPEUR traded below 1.1000 (and above .9100 in EURGBP) as sentiment for the UK currency continues to sour. There was little in the way of news or data driving the pound lower through yesterday, again it’s another clear example of heavy sentiment caused by the uncertainty around Brexit. Broadly speaking sentiment was subdued across markets, European stocks traded lower as energy stocks gave back some of their previous day gains, while in the US the Dow suffered its biggest one day decline in over a month while the S&P and the NASDAQ were down 1.24% and 1.53% respectively following the first days of Q3 earnings. Overnight the risk off tone continued with Asian bourses trading lower. The USD traded to 11 week highs as rising US yields favored the greenback, as speculation for Fed rate hikes grows. Thus far this morning European stocks have opened on a softer tone, while the Euro is also trading slightly weaker.
It was not just one way traffic for GBP however, overnight news PM May would allow lawmakers to debate on her plan to take Britain out of the EU with parliament permitted to vote on the actions. This helped GBP rally one big figure across EUR and USD, amongst others, and will hopefully provide some colour to a market that is currently pricing in the worst case scenario for Brexit terms. GBP is still the worst performing currency across the globe this year and liquidity in the pound remains weak, but any talk around Brexit that might be deemed slightly positive provides scope for a relief rally in sterling pairs. The BOE’s deputy governor speaks in front of parliament later today so we’ll also be keeping an eye on that for any indications on BOE policy going forward. Comments from yesterday’s echoed previous sentiments as speakers suggested the BOE look to remain accommodative and ready to act further if required.
The USD index is over 3.5% higher from its September lows and has shrugged off last weeks subdued labour market report as speculation mounts the Fed will raise rates by year end. There are similarities to last years rate hike, in that even the most dovish of FOMC members have now started to sound more positive about the potential for rate hikes. We mentioned this in early September, the Fed needed to convince markets they were ready to hike, while data also had to support the rhetoric. Thus far data has been slightly firmer, with a couple of exceptions, but Fed rhetoric has remained consistent. Later this evening we have the release of the FOMC minutes from the September meeting, this should provide a good indication of the Feds sentiment, although I will be more focused on the Feds Dudley and George, due across the wires this evening, with Dudley due to speak about the US economy.