Sterling was unable to make headway in early Europe on Monday and posted net losses with a brief dip against the dollar. The latest reports suggested that Chancellor Hunt was aiming to tighten fiscal policy by around £54bn in the November 17th Autumn Statement. This was towards the upper end of expectations, reinforcing recession concerns and the potential for a relatively dovish Bank of England stance. There was, however, renewed and strong buying later in the session with firm risk appetite continuing to boost the UK currency. Sterling remains strongly correlated with moves in global asset prices and confidence in the global economy. In this context, hopes for an easing of Chinese coronavirus restrictions were again an important factor underpinning the UK currency. There were reports that the UK government would announce a LNG deal with the US which would ease energy-security fears. BRC data recorded a slowdown in like-for-like sales growth to 1.2% from 1.8% with a slide in volumes given the increase in prices with further fears over the outlook for consumer spending.
No Key Data
The Euro-Zone Sentix investor confidence index recovered to -30.9 for November from -38.3 the previous month and stronger than consensus forecasts of -35.0. According to Sentix, the rise in situation and expectation values shows how sensitively investors react in their economic expectations to signals from the energy market. It noted that October temperatures were higher than usual and gas storage facilities in Germany are full. In this context, it added that concerns about a catastrophic gas shortage are fading which underpinned business confidence, although there is still a high degree of uncertainty. The Euro posted strong gains after Monday’s European open with a challenge on parity against the dollar as the US currency was subjected to another round of selling. Although there was a brief move above this level there was significant selling interest and the Euro failed to hold this level into the European close. ECB President Lagarde stated that the central bank must bring inflation back to 2% with further interest rate increases.
Key Data
10.00 Retail Sales (YoY) (Sep) Exp. -1.3% Prev. -2%
The dollar dipped again following fresh speculation that the Federal Reserve would slow the pace of rate hikes at the December meeting. The US employment trends index dipped significantly to 119.6 for October from a revised 120.7 the previous month, but this was still a strong result in historic terms. Markets will be monitoring the results of the US mid-term elections with expectations that the Republicans will regain control of the House. The Senate race is liable to be close, but with the potential for Democrats to lose the upper chamber as well which would increase concerns over a lame-duck presidency and potentially curb dollar support. The final Senate outcome may not be known for weeks if mail-in votes prove decisive.
No Key Data