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Pound rally and US rate cut fears dominate Thursday trade

GBP - British Pound

During Thursday’s trade the Pound staged a rally taking a liking to the reaction of the Prime Minister's Brexit withdrawal plan. Cable moved to a high of 1.2411, a level last seen on the 25th September and GBP/EUR tested 1.13 but only getting to 1.1291 . Whilst Bojo appears to have secured support at home, with around 30 Labour MPs potentially backing his accord, the same cannot be said further afield. Irish Prime Minister Leo Varadkar said that while the new plans were welcome, they ‘fall short in a number of aspects’. Added to this, the European Commission said the plan contained ‘problematic points’ and ‘further work is needed’. Overnight the Pound has since retracted back below 1.24 and 1.1240 against the Euro. Following the EU’s concerns there have been reports the bloc has given Johnson until October 11 to come up with a new plan placing uncertainty back in the pound's basket. This will keep Sterling moves capped for the foreseeable as intense negotiations play out over the coming week.

As firms brace for the possibility of a chaotic Brexit at the end of the month, the latest PMI data for the UK service yesterday sector signalled a contraction in activity in September, and the biggest cut in employment in over nine years. The Index fell to 49.5 in September, from 50.6 in August. Chris Williamson, Chief Business Economist at IHS Markit was quoted “At current levels the surveys point to GDP falling by 0.1% in the third quarter which, coming on the heels of a decline in the second quarter, would mean the UK is facing a heightened risk of recession”.

Key Movers

The US Dollar is crashing across the board as market odds for a rate cut later this month have risen sharply, now above 80%. On yesterday’s docket we heard from the Institute for Supply Management (ISM) in its latest Non-Manufacturing Purchasing Managers' Index (PMI), this dropping to 52.6 in September from 56.4 in August and fell short of the market expectation of 55. With the initial market reaction, the Greenback came under strong selling pressure.

Aussie retail sales overnight came in at 0.4%, narrowly missing the expected 0.5% rise, having dropped by 0.1% in August. So far, the weaker-than-expected rebound in retail sales has not had any negative impact on the Aussie dollar as market jitters from the slowdown in the US is providing support to the commodity currencies.

Today's calendar sees a raft of employment data from the US and the eagerly anticipated ‘Non-Farms’, a slight drop has been pencilled in.

Expected Ranges

GBP/USD: 1.2280 - 1.2400 ▼

GBP/EUR: 1.1210 - 1.1290 ▼

GBP/AUD: 1.8180 - 1.8310 ▼

GBP/NZD: 1.9450 - 1.9600 ▼