20/10/16 - UK Job Creation Slows

GBP

Sterling touched its highest in almost two weeks against the euro on Wednesday, holding onto its biggest one-day gain in months and riding out another round of headlines around Brexit negotiations and the government's attitude to the central bank.

Economic data has played second fiddle to politics recently and there was no reaction to data that showed UK job creation slowed -- but did not collapse -- after June's vote for Britain to leave the European Union.

The pound was hit in morning trade by headlines confirming that Germany would not engage in talks before Britain gives formal notification of its intention to leave the bloc early next year.

Sterling also briefly gained some ground as Chancellor Phillip Hammond spoke in parliament and dealers said it had been helped by a broad dip in implied volatility -- a measure of the scale of expected moves in the months ahead -- across the G10 group of developed market currencies.

GBP data also yesterday showed the Claimant Count Change printed positively at 0.7k against a previous of 7.1k, showing the change in number of people claiming unemployment related benefits.

.

USD

The dollar has been on a very positive run and has been largely tracking U.S. Treasury yields in recent weeks on the view that the Federal Reserve is likely to raise interest rates when it meets in December.

The greenback has rallied around 3 percent since the end of September across the board, mirroring a climb in benchmark U.S. Treasury yields to a four-month high above 1.8 percent. The dollar index against a basket of six major currencies was little changed on Wednesday after slipping slightly the two prior sessions as investors continued to evaluate the likelihood of a December rate hike, and took profits from the recent dollar rally.

Data on Wednesday showed that U.S. single-family starts surged in September, pointing to sustained housing market strength, even as a drop in the construction of multifamily dwellings pushed overall home building activity to a 1-1/2-year low.

 

EUR

The euro weakened against the U.S. dollar on Wednesday, a day before the European Central Bank is due to meet, with investors focussed on whether ECB President Mario Draghi will give any indications that the central bank will begin tapering its bond purchase programme.

The ECB may discuss technical changes to its asset-buying scheme but a decision could be deferred until December when the bank will also decide whether to extend the scheme beyond March, sources familiar with the discussion said last week.

There have been recent reports that Draghi may be looking to taper this current bond buying programme. Market participants will be firmly watching this to see if he pushes this back to cause the single currency some more strength with the Euro to look to weaken if he indicates the complete opposite.

 

Key Announcements

09.30 – GBP – Retail sales M/M; Forecast at 0.3% from a previous of -0.2%

12.45 – EUR – ECB Minimum Bid Rate; Expected to stay the same at 0.0%

13.30 – ECB Press Conference

13.30 – USD - Philly Fed Manufacturing Index; Forecast at 5.2 against previous of 12.8

13.30 – USD – Unemployment Claims; Forecast at 251K against a previous of 246K