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October 2016

Sterling bounces but dives again on UK politicking

Published: Thursday 13 October 2016

  • Sterling bounces but dives again on UK politicking
  • USD strengthens as Fed hints of December hike
It’s not often Marmite and the FX markets cross paths, however, today could be the first visible trickle down effects of Brexit on the everyday consumer.  Tesco has stopped selling dozens of its most famous household brands to its online shoppers because of a dispute with its biggest supplier, Unilever. Included are Marmite, PG Tips tea, Pot Noodles and Surf washing powder. The row is said to have developed when Unilever increased wholesale prices caused by the falling GBP. With the UK economy being somewhat sensitive to sentiment, news stories such as these will not do the struggling pound any favours. By the way, Bovril tastes better on toast anyway!

Sterling started yesterday as the best performing currency after Prime Minister Theresa May conceded to holding a Parliamentary Vote on her eventual plans for taking Britain out of the EU.  Although this doesn’t change the course of whether Britain will Brexit or not, it does give the market hope that it could be a cushioned exit - by no longer prioritizing immigration, instead seeking a way to allow Britain to still trade within the single market. Sterling pared back those earlier gains and ended the day on the back foot after Brexit Secretary David Davis told Parliament “The mandate for Britain to leave the EU is clear, overwhelming and unarguable." It is clear the politics will overshadow any economic data and if Parliament puts up a good fight, Sterling will rally.
Across the pond, minutes for the September Federal Open Market Committee (FOMC) meeting showed that the decision to keep rates unchanged was a "close call". Several members said that it would be appropriate to raise rates "relatively soon" provided that economic developments unfolded as expected. The minutes also noted that "a reasonable argument could be made either for an increase at this meeting or for waiting for some additional information on the labor (sic) market and inflation." Fed fund futures are now pricing in a 70% chance of a rate hike in December. The USD is stronger across the board and this strength is likely to continue unless we see a large downturn in the data.
With Donald Trump running for president, there are copious amounts of odd news stories, but if you can wade past the faux pas and sexist stories, you’ll come to a story about a chap dressed as Batman chasing the people dressed as killer clowns in Cumbria. Have we stumbled into a parallel universe or what?!


If, however, you have richer pursuits in mind and know that no woman should be judged by how she looks - that everything she brings to the party is more important than the size of her arse - then refuse to be sucked into the never ending whirligig of self-doubting, self-hating madness that is stop-start dieting and crazy new exercise regimes.
Arabella Weir

Today's Major Economic Releases 

Market BST Data/Event Previous Expected
CAD 13:30 Canada: New Housing Price Index (NHPI) 0.4% 0.3%
USD 13:30 US: Unemployment Claims 259k 252k
USD 13:30 US: Import Prices month-on-month -0.2% 0.1%
USD 15:30 US: Natural Gas storage 80b 80B
USD 16:00 US: Crude Oil inventories -3.0m 0.4m

Daily Currency Analysis by Denzil Rickerby & Michael Hart

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