News & analysis


Sterling has largely held on to last week’s rally this morning, despite Brexit noise in the headlines turning mildly unfavourable over the weekend. Michel Barnier told diplomats last night that negotiations over the weekend had not resulted in a breakthrough, and that there was little time to agree on a solution in time for this week’s EU leaders summit on Thursday. The week’s calendar is nothing less than jam-packed for sterling, with a busy data calendar likely to be overshadowed by Brexit drama. Today and tomorrow will feature ongoing Brexit negotiations, as well as an examination of the Government’s Queen’s speech this morning. The Queen’s speech will be debated tomorrow, with debate historically lasting for as many as five days before the legislative agenda in the speech is voted in. The EU leaders summit will begin in Brussels on Thursday, and if a deal is struck Boris Johnson will present it for a vote on Saturday in the commons. Sterling volatility is likely to remain exceptionally high during the week. There are also a number of data releases scheduled, including labour market data tomorrow, inflation on Wednesday, and Retail Sales on Friday.


The euro had a strong finish to last week, with two of its main rivals the dollar and sterling fell due to idiosyncratic factors. Brexit and EU budget submissions on Tuesday are likely to be significant drivers for the euro this week, with the former likely to bubble on throughout the week, possibly culminating in good (or bad) news at the week’s EU leaders summit, beginning Thursday. The week’s data calendar includes a few noteworthy items, including Eurozone Industrial Production at 10:00 BST. Tomorrow at the same time, the widely followed ZEW survey will be released. The German economic sentiment component of the survey will be worth watching, given the modest improvement seen last month.


The US dollar took on some water Friday as US-China trade negotiations bore fruit. China agreed on Friday to more than double its annual purchases of American agricultural goods to as much as $50bn. The US also agreed to not increase tariffs from 15% to 20% on $250bn of Chinese imports. Notably, this is not the first time the US has refrained from increasing tariffs on Chinese imports, nor is this the first time Chinese authorities have pledged to increase their purchasing of US exports, but it is the first time the word “deal” has been attributed to such a scenario. There is little on the data calendar this week for the US besides Retail Sales on Wednesday and the Federal Reserve’s Beige Book release. With the Federal Reserve set to cut rates at the end of the month, in the market’s view at least, and little coming in the way of data, US-China headlines will likely drive the dollar this week.


We have long awaited a bout of loonie strength, but it finally came after the release of September’s labour market data. The loonie rallied some 0.72% to close higher on the day after the labour market report saw an additional 53.7K jobs added in September and wage growth data outstrip expectations by 0.5% to post 4.3% YoY growth. The job growth data was strong underneath the surface too, with the job additions in the core age group and the employment gain focus on full-time jobs. Expectations of a rate cut by the BoC at the end of the month were trimmed to make such a scenario an extreme tail risk. On Wednesday, CPI inflation data, which has been fluctuating around the BoC’s 2% target for some time now, is released at 13:30 BST.