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Sterling slips but stabilises after DUP warning

Published: Tuesday 23 October 2018

  • Central bankers will dominate today
  • Brexit – contentions but no proposals on Irish border bottleneck
​​By David Johnson

Increasing pressure on the UK Prime Minister from within and without her party caused Sterling to slide on Monday. That and an absence of any meaningful data. The Democratic Unionist Party (DUP) - the crucial few votes that give the Conservatives a majority – warned they would vote with the opposition to Theresa May on a series of crucial amendments that would declare a customs line in the middle of the Irish Sea to be illegal. They all know what they don’t want but no one is coming up with proposals for what they do want. That goes for the rebels in the government and negotiators in the EU.
Either way, the Pound slipped below USD 1.30 and below EUR 1.13 and there were similar declines in other GBP based exchange rates. Sterling has stabilised overnight at roughly the same levels and that may have something to do with positive forecasts of lower government borrowing released by the Office for Budget Responsibility.  We will get the Confederation of British Industry (CBI) distributive trades survey this morning. This view of the retail industry is expected to remain slightly negative, but there have been surprises after several gloomy forecasts recently, so hold on to your hats.
Euro perks up on price index news
The Euro is a little brighter this morning after German producer price indices showed an unexpected improvement. That hints at higher costs at a retail and wholesale level and that fuels Gross Domestic Product (GDP) growth.
Asian markets nervous of geopolitical tensions
Asian markets reacted poorly to a Bank of Japan report that warned of overheating in parts of the debt market and to suggestions that the US President is going to ramp up nuclear weapon production until China and Russia “come to their senses”. Such geopolitical tensions are always harmful to equities markets, but do fuel rises in gold and the Japanese Yen and USD.
US Dollar stronger in run up to central bank speeches
The rest of today is to be focussed almost entirely on central bankers. Out of the woodwork, we will hear from Bank of England (BoE) Governor Carney, who has form for undermining the Pound on a regular basis. We’ll also have speeches from Federal Reserve Bank of Atlanta President, Raphael Bostic, Federal Reserve Bank of Chicago President, Charles Evans, and Federal Reserve Bank of Minneapolis President, Neel Kashkari. That should keep the markets fairly buzzy. The US Dollar is stronger due to the nuke rhetoric and threats and any hints of a hastened pace of rate hikes will add a wriggle to the pace of the Dollar’s strengthening. We will also see the Fed’s Red Book published. This is an index related to retail sales in major stores and that looks set to be quite positive after a poor result last month.
Put your best foot forward
And the police in Roanoke in Virginia arrested a man for burglary from a shoe store and seized a number of stolen trainers, but they were all just shoes for right feet. Now that might look odd, but shops generally display the left shoes on their racks and in windows. So maybe his cunning plan was to nick the matching ones straight from the displays. Or maybe he is just a bit strange? Who knows…
Searching for Dad
John’s wife takes a new job, but the induction programme takes four weeks and it’s too far from home for her to keep coming back. So she and John agree she will stay away for the month. John reschedules his work so that he can work from home while she is away, to ensure the cats and dogs are OK. The first Friday he is at home, a 12 year old boy knocks on the door and says, “I’m looking for my dad.”

John had been married 20 years, but he had been unfaithful a few times and was pretty wayward around 12 or 13 years ago, so he freaked out, thinking this boy might be an unexpected long lost child of his. Fearful of any repercussions, he slammed the door without saying a word.

The next Friday it happens again.  Once again, he shuts the door without a word.

It happens again the next week, but this time, John doesn’t slam the door; instead yells at the kid:

“Leave me alone. I am not your father!!”

The kid looks confused and says, “I know you’re not my dad but I know he comes here every Friday afternoon!”

Today's Major Economic Releases

Market BST Data/Event Previous Expected
GBP 11:00 UK: Confederation of British Industry Industrial Order Expectations -1 -1
EUR 15:00 EU: Consumer Confidence -3 -3
USD 15:00 US: Richmond Manufacturing Index 29 25

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