16th October 2018 Market Update
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?? GBP – Today saw the release of important wage-growth data out for the UK, as part of which average earnings (excluding bonuses) rose 3.1% in the three months through August, the highest since January 2009 while unemployment held at 4%, a 43-year low; GBP/USD and GBP/EUR moved sharply higher this morning as a result. However, it remains to be seen how long we see these elevated rates as caution remains around Sterling longer-term, due to the ever-present shadow of Brexit. As part of this, despite the positive data we have seen this morning – concerns around Sterling remain focused on tomorrow’s EU summit where the market no longer sees a Brexit deal as being the most likely outcome. Further evidence of the significance of Brexit and the volatility it brings can be seen by the fact that last week, Sterling rose to a one-month high against the Dollar on the back of news claiming a deal was 85% complete. Following this, Sterling fell back to weekly lows yesterday as fears of a no-deal returned to the table. With this increased volatility, limit or market orders could be the best way to obtain desired rates.
?? EUR – Without sounding like a broken record – the Euro is being heavily swayed by the Italian budget with yesterday finally seeing the submission of their three-year budget plan which confirmed a bold deficit of 2.4% for 2019. As expected, the Italian government is keen to follow through on promises to voters to increase social spending and lower the retirement age, both of which were controversial measures promised by the right-wing, anti-immigration Lega party and Five Star Movement. Over the past month, European Commission officials had expressed their frustration at Italy’s rebellious stance, which looks set to continue. The market now awaits the inevitable rebuttal from officials in Brussels over Italy’s flagrant failure to comply with EU rules, until which – caution is the name of the game as the Euro remains under pressure.
?? USD – The Dollar had a marginally weaker day yesterday after US retail sales came in lower than expected, indicating a slowdown in consumer demand. This data, alongside underwhelming CPI data last Friday, serves as an indication that perhaps the US economy is not as hot as first thought, placing the Fed’s interest rate plans into jeopardy. Saying that, elevated treasury yields this morning have kept the Dollar well supported, especially against emerging market currencies. Today also sees the US Treasury FX Report where it will finally be revealed whether or not China are to be officially labelled a currency manipulator which could see relations improve or worsen between the two economic giants.
GBP: UK wage growth hits highest level in a decade, while unemployment remains at 43 year low, despite shadow of Brexit;
EUR: Italian Government doesn’t play nice as Budget submission shows no sign of reconciliation;
USD: US Retail sales come in lower than expected, as Treasury Yields tick higher.
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