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8th October 2018 Market Update

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?? USD –Last week’s Dollar headlines were punctuated by a very noisy US Jobs report on Friday in which the US economy sent a number of different messages to the market. Firstly, the US economy added 134,000 jobs vs. a forecasted 185,000 which was the lowest reading for the year. However, this negative news was offset by the revision to August figures from 201,000 to 270,000. In addition, wage growth came in at 2.8%, down from 2.9%; while the prior month’s reading was revised lower by 0.1%. It was this figure that caused USD to weaken as those looking for higher levels of inflation as a basis for increasing interest rates in the US next month were left a little disappointed. That being said, Friday’s reports did little to alter expectations that the Fed will press on with their plans to raise interest rates again, with the likelihood currently standing at 77.7% according to market analysts. Looking ahead this week, we have PPI and CPI figures out as well as a number of Federal Reserve speeches, which will likely continue to spread a positive message about the US economy.

?? GBP – Sterling continues to take on all challengers, having seen off the potential threat of the Tory Party Conference last week as reports on Friday that a Brexit deal is ‘very close’ helped to keep Sterling well bid. Going forward, whilst there are still hurdles to overcome, namely earning majority support in the UK House of Commons on any Brexit deal agreed with the EU; the formerly impending threat of a cliff-edge ‘no-deal Brexit’ scenario is essentially off the table at this point. What does remain an issue for UK politicians is the nature of any future trading relationship with the EU, but this is unlikely to be resolved prior to March 2019 and so can be classified as a medium-term risk. Looking ahead to this week, releases include August monthly GDP data, as well as releases on industrial production, manufacturing production and trade over the course of the week.

?? EUR – The Euro ended last week broadly weaker; down 0.73% over the course of the week and hitting six-week lows on Thursday following persistent concerns that the Italian government’s spending plans could trigger another round of the country’s debt crisis. Saying that, with both the EU and Italy showing a desire to make concessions – a budget compromise could well be reached later this year, which if achieved – could help the Euro give back some of its recent losses. Looking ahead this week, data releases for Germany should confirm whether the improved consumer indicators we saw in July for Europe’s largest economy followed through to an improved macro performance. In addition, the ECB’s September meeting minutes should also shed some light on the central bank’s thoughts on the path going forward in 2019.

 

Summary: 
USD: US Jobs Report, despite mixed signals provides adequate support for December rate hike;
GBP: Sterling continues to be buoyed by positive Brexit headlines, but the road promises to be both long and winding;
EUR: Italian budgetary concerns continue to weigh on the Euro.

 

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Darren Kilner

Darren Kilner

Darren is Head of Dealing at FairFX. Darren lives and breaths FX, his Mastermind topics are G8 currencies and economic forecasts.

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