Morning Report: 1 November 2018

November 1, 2018

GBP. Sterling bounced from month lows yesterday as Dominic Raab, the current Brexit Secretary, said a deal could be reached by November 21st. The Irish Foreign Minister, Simon Coveney, says this is “possible” but for that to happen “negotiations need to intensify and commitments that were made by the UK need to be followed through”. Sterling’s optimism yesterday was built upon this morning when news flashed across Reuters saying a tentative deal has been reached with the EU on Financial Services using the equivalence system. Brexit uncertainty has been weighing on sterling, especially over the last few weeks, and today’s progress in negotiations rightly caused the pound to make a significant break to the upside – sterling is up 1.59% upon writing since yesterday morning.

EUR. EURUSD tested a 15-month low yesterday as the single currency lost out against the greenback for the fourth day in a row. This despite October Flash Consumer Price Indices showing signs of gradually rising inflation, with the headline reading coming out at 2.2% year on year, and the core print coming in at 1.1%. The higher services sector inflation is supportive to the view that the winds of increasing wage pressures will be what will blow some life in the so-far anaemic core inflation pressures in the Eurozone, a perspective frequently vented by European Central Bank President Mario Draghi. Today is a bank holiday in most of continental Europe, which may suppress volumes somewhat.

USD. The dollar continued its broad gains yesterday against G10 currencies, with the exception of JPY, GBP and SEK. This morning, however, the greenback is firmly on the defensive, after the DXY composite index broke another fresh high yesterday, as the euro joins sterling in making some much-needed gains after reaching monthly lows. The US data calendar comes into play today with the ISM Manufacturing Index released at 14:00 GMT and the beginning of this weeks Unemployment data at 12:30.

CAD. The loonie has jumped on this morning’s dollar reversal and pared all of yesterday’s losses that seemed mostly oil-led. The higher than expected Gross Domestic Product growth of 0.1% for August was not enough to flush away the weakness that trickled down on the loonie from the oil markets as WTI dipped below $65 a barrel again; five months low. Tomorrow’s labour market data is all to look out for in the remainder of the week.

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