Sterling retreats after Brexit headlines worsen
The past 24 hours or so of currency trading have been rather messy for the pound.
Sterling briefly rallied back above the 1.29 level versus the US dollar yesterday afternoon as investors grew
increasingly confident that a deal on Brexit could be struck that avoids the worst-case ‘no deal’ scenario. This
comes after Prime Minister Johnson was able to pass his controversial Internal Market Bill through the House of
Commons on Tuesday, despite strong opposition within the Tory Party.
Meanwhile, economic data out of the UK yesterday was broadly encouraging. House prices according to
Nationwide rose by a greater-than-expected 0.9% in September, aided in part by the stamp duty holiday
announced by the government earlier in the year. Second quarter GDP was also revised upwards, with the UK
economy contracting by 19.9% versus the 20.4% initially reported.
This optimsm was quickly dashed this morning, however, amid headlines that EU and UK negotiators had failed
to close the gap on state aid – one of the key sticking points in the ongoing Brexit discussions. The pound has
already erased all of its gains from Wednesday at the time of writing and could be set for further losses should
no common ground be found in the next few days.
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Dollar loses ground after messy US election debate
Despite some strong US data, the dollar sold-off against most major currencies on Wednesday, perhaps a
result of the messy election debate earlier in the week that gave voters very little to go off.
The political mess surrounding the election campaigning largely overshadowed yesterday’s positive US
macroeconomic news. Pending homes sales surged in August, up 8.8% for the month (3.2% expected), as
buyers took advantage of record low interest rates. Similarly to the UK, the US Q2 GDP estimate was revised
upwards, while the ADP employment change number showed that job growth in the private sector accelerated
last month. 749,000 jobs were created in the private sector in September, its largest in three months, amid a
sharp increase in hospitality and construction hiring. This bodes well for tomorrow’s more important nonfarm
Aside from tomorrow’s US labour report, we may get a bit of market action surrounding Friday morning’s Euro
Area inflation numbers – the highlight of an otherwise relatively quiet week of economic news in the common