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October

Sterling weaker after yesterday’s data

Published: Thursday 18 October 2018

  • Dollar firm with interest rates likely to continue rising
  • Australian unemployment falls
​​By Charlie Horsley

Sterling fell yesterday after weaker than expected inflation data and disappointment at the lack of progress at the European Union summit. Although there have been conciliatory noises from both sides in the last couple of weeks and the tone emanating from leaders is currently more optimistic, the two sides have been unable to make a breakthrough with the Irish border being the main concern. Prime Minister May made an impassioned 20 minute speech to EU leaders yesterday however nothing new was mooted leaving negotiations at an impasse.
 
One proposal doing the rounds is an extension of the post-Brexit transition period for an extra year with the UK only leaving in 2021. This way Britain would remain in the customs union for a further year and avoids a hard border with Ireland giving policy makers an extra year to come up with a final solution. Unfortunately I cannot see how this will sit well with the arch Brexiteers in the Conservative party who want a clean break from the Union and don’t want to send any money to Brussels now , let alone for another three years without having any influence on policy.  With regard to the current EU summit, EU leaders decided that there was no “decisive progress” for calling an unscheduled summit in November. Instead, they’re now targeting to close the deal in December.  Sterling has stumbled on the lack of new news and it is difficult to see a how a rally could be sustained in the current environment.  
 
Dollar firm with interest rates likely to continue rising
 
Elsewhere the dollar is firm against its major peers this morning after minutes from the US Federal Reserve’s September meeting confirmed expectations that the central bank is likely to continue raising interest rates this year. The minutes from the Fed’s September meeting showed every Fed policymaker backed raising interest rates and also generally agreed borrowing costs were set to rise further, despite US President Donald Trump’s view that the tightening has already gone too far. Interest rate futures are now pricing in an 83 percent likelihood that the Fed raises rates in December, the fourth hike this year. Two more increases are expected next year and there is now a chance that the Fed may raise rates above 3% by the end of 2019. Markets do not seem to be pricing this in at the moment preferring to concentrate on the Brexit saga and issues in Italy.
 
Australian unemployment falls
 
Overnight it was reported that the Australian unemployment rate had fallen sharply. The unemployment rate fell to 5.0% from 5.3% in August confounding expectations. Unemployment is now below the neutral rate where we should be seeing signs of inflation increasing, for now that has not been the case with Consumer Price Index remaining benign. The Reserve Bank of Australia has stated that the probability of the next move in interest rates will be higher. The Australian dollar strengthened on the news and is back within the recent trading range.
 
UK retail sales will be the major focus in European session today. The Swiss will release trade balance. Later in the day, US will release Philly Fed survey and jobless claims.
Jokes

This is my step ladder. I never knew my real ladder. 

Toughest job I ever had? Selling doors, door-to-door.

My wife told me I had to stop acting like a flamingo. So I had to put my foot down.

Today's Major Economic Releases

Market BST Data/Event Previous Expected
EUR Day Two EU Economic Summit    
CAD 13:30 Canada: ADP Non-Farm Employment Change 13.6k 13.6k
USD 13:30 US: Philly Federal Manufacturing Index 22.9 19.7
USD 13:30 US: Unemployment Change 214k 211k
USD 15:00 US: Conference Board Leading Index 0.4% 0.5%
NZD 22:45 New Zealand: Visitor Arrivals 2.8% 2.8%

For more information, infographics and the latest currency insights, visit www.halofinancial.com/news