Despite divisions in the Government and conflicting statements emerging from the Bank of England, the pound managed to recover losses yesterday that it sustained in the morning.
Bank of England super-dove Gertjan Vlieghe caused a sterling rally last week as he said interest rates will have to go up in ‘coming months’, causing markets to change their bets to a November rate hike instead of sometime in 2018 as previously expected.
Governor Mark Carney speaking Washington on Monday, then caused the pound to drop as he said, rate hikes would be slow and gradual, whilst admitting the UK economy is likely to be the slowest growing of the G7 nations as the UK tackles Brexit.
Home Secretary Boris Johnson and Prime Minister Theresa May have outlined their own vision of a post Brexit UK, and they appear to have not conferred and many believe Johnson may stand down if May opts for a ‘softer’ Brexit.
GBPEUR remained well supported. Opening at 1.1294 we saw a half cent drop in the morning a session low of 1.1240 and it appeared to be the reversal of last week’s rally, but the pound went on to test the 1.13 level in the afternoon.
GBPUSD spent the majority of the day trading either side of the 1.35 mark, closing the London session at 1.3503.
Retail sales data released this morning showed that sales in August beat expectations, on an annualised basis 2.4% vs 1.4% the previous month whilst markets were expecting sales to fall to 1.1%.
In Germany, the ZEW Economic Sentiment Survey gave the euro a boost as results were better-than-expected. The September figure came in at 17.0 well ahead of last months and estimates of 12.0.
In the US, Building Permits came in higher at 5.7%, versus estimates of a fall to -0.8% whilst Housing Starts data for August missed estimates at -0.85 versus 1.7%.
EURUSD held steady throughout the morning and moved through the 1.20 level, 3 times. As the day went on the euro gave up its gains and returned to the vicinity of the opening price of 1.1970 as the European session drew to a close.
President Trump addressed the UN General Assembly and in a controversial speech, heavily criticised North Korea and dubbed their leader, Kim Jong-un as Rocket Man. He set upon other countries such as Iran and condemned the actions of Syria’s leader Bashar al-Assad.
Focus turns to the Fed meeting which finishes this evening. Experts aren’t anticipating any change in interest rates, but a new phrase may emerge tonight - Quantitative Tightening or QT. The Fed may announce details on how and when it will start reducing its $4.5 trillion portfolio of government securities. Also, investors will be seeking anymore clues on a rate hike in December.