Daily & Weekly Market News

Get access to our expert daily market analyses and discover how your currency has been tracking with our exchange rate tools.

Optimism for a Brexit deal supports the pound ahead of important GDP data.

By Alex Edwards

Optimism seems to be growing for a Brexit deal, and as such GBP/USD has pushed higher over the last 24 hours, opening this morning close to - but shy of - the 1.32 big figure. There are a few different and recent reasons for this change in sentiment. First up, a Dow Jones report surfaced yesterday suggesting that a deal could be done by as early as Monday. A Times piece, meanwhile, has stated that Theresa May is expected to outline a compromise proposal on the Irish border to her Cabinet next Tuesday. It was also reported by the same paper that a group of 30-40 Labour MPs were prepared to defy Corbyn and back the Chequers deal. Further to these headlines, Dominic Raab spoke before the Commons yesterday and said that negotiations with the EU had intensified and that they were engaging with the EU on alternative Irish backstop proposals.

Overall, it was a positive day for the pound, linked to the seemingly increased likelihood of a Brexit deal.

Today looks to be even more eventful for the pound with markets looking to GDP and Manufacturing Production for direction. The headline GDP number is expected to print at 0.1% month-on-month, a slight contraction on the previous month’s reading of 0.3%.

The Bloomberg USD Spot Index traded higher in the London session on Tuesday, but reversed all of the initial gains in New York as the advance in Treasury yields stalled ahead of Thursday’s inflation report.

Meanwhile on the data front, the NFIB small business optimism index edged down from 108.8 in August to 107.9 in September. However, the index remains near an all-time high with small business owners remaining largely positive about the economy. Among the sub-indices, drops were evident in hiring and compensation plans. The proportion of small business owners reporting that their compensation costs had increased rose 5 percentage points in September to a record high 37%, while the share planning to raise compensation costs in the future increased 3 percentage points to 24%. Both are highs for this cycle but are only marginally above the range recorded over the past year.

The euro stumbled overnight during the local European session after opening just below the 1.15 handle. Dropping to as low as 1.1430 at one stage, the fall was in reaction to ongoing risks in Italian budget developments. Markets have seen consecutive days of a Euro sell off as Italian politics remain a major factor in the EUR/USD inability to stay above the 1.15 handle.

The euro recovered at the close of play on Tuesday and paired all loses as Italian bonds pulled back from recent highs. The greenback was also sold off following trade war jitters.

The Australian dollar edged marginally higher through trade on Tuesday. It made further gains overnight after Australian consumer confidence data printed better than market expectations and as the greenback continued to lose ground.

This all said, the general outperformance of the US dollar, Chinese growth concerns and the potential for future commodity price pressures continue to weigh on the Aussie and a persistent push below 0.7050 and 0.70 could signal a next leg lower.

The Canadian dollar continued to make ground against the U.S. dollar yesterday with USD/CAD falling below the 1.3000 figure. This pus came mostly as a result of the weakening greenback.

On the data front yesterday we saw the release of Canadian Housing Starts for the month of September, which dropped sharply from the previous month. Monthly seasonally adjusted annual rates (SAAR) of housing starts printed at 188,683 units in September, down from 198,843 units in August, and well short of the estimate of 203 thousand.

The kiwi pushed slowly higher against the weakening US dollar on Tuesday and overnight. The USD fell as yields retreated from Friday’s seven-year highs, ultimately allowing the NZD and the AUD to post modest gains. We did also have some positive news out of the domestic economy on Tuesday with NZ’s fiscal accounts demonstrating an operating surplus on 1.9% of GDP for FY18 and ANZ’s monthly inflation gauge suggesting next week’s CPI print will be strong. With markets pricing a 25% chance of a rate cut by August next year, a strong print will render this scenario more unlikely.