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Brexit talks leave sterling mixed

Mon 13 November 2017

Highlights from last week:

  • Lack of Brexit progress weighs on the pound
  • Euro zone economic data underpins support for euro
  • US dollar drifts lower on lack of meaningful data

The week ahead:

  • UK consumer inflation data (Tuesday, 9.30am)
  • Euro zone GDP data (Tuesday, 10.00am)
  • US retail sales data (Wednesday, 1.30pm)

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Sterling struggles as UK given two week ultimatum

The pound failed to make any significant headway against a number of its global peers last week as Brexit negotiations continued to yield little progress. Lack of headway during last week’s talks prompted the European Commission’s chief negotiator Michel Barnier to give the UK a two week deadline in which to make concessions in current negotiations in order to progress to trade talks by the end of the year. Any further delays in the negotiations timetable will increase the likelihood of no deal being reached.

Prior to the outcome of the latest Brexit negotiations, the pound had been buoyed by news the UK’s industrial sector improved further during the third quarter. Increases in the manufacturing of vehicles and medical equipment helped production rise by 2.5% in the year to September. Figures revealing the sale of non-food items were less positive however, growing at their slowest pace on record, giving rise to speculation retailers could suffer in the approach to Christmas.

Euro firmer as economic indicators improve

Despite remaining relatively flat against the pound, the euro enjoyed weekly gains against the US dollar as the euro zone economy continues to impress.

The European Commission confirmed the euro zone economy is projected to grow at its fastest rate in a decade during this year. Forecasts released last week revealed the Commission expects growth of 2.3%, up from the 1.9% previously predicted. European retail sales also remained buoyant during September rising 0.7% thanks to strong demand for clothing, food and tobacco.

Dollar backtracks on sparse economic data

The US dollar retreated against both the euro and sterling last week as a light US domestic calendar offered little support for the dollar. The number of citizens claiming benefits due to unemployment rose from the previous week as the effects of recent hurricanes took hold. Claims for the week rose by 10,000 to 239,000 overall. Elsewhere, US consumer sentiment fell during November, although it remained at its second highest level since January.

Elsewhere

The Australian dollar retreated to intra-week lows of AU$1.7260 versus sterling following the Reserve Bank of Australia’s decision to leave interest rates on hold at 1.5% for the 15th consecutive month. Australia’s central bank governor Phillip Lowe confirmed household debt remains a concern with any rises in interest rates likely to hit consumers and economic growth.

The Reserve bank of New Zealand was a little more upbeat over their country’s economic prospects despite leaving interest rates on hold at 1.75%. Reaching two-week highs of NZ$1.8783 against the pound, the New Zealand dollar was bolstered after the central bank acknowledged economic improvements thanks to rising commodity prices.

The Canadian dollar advanced to highs of CA$1.6622 versus the pound as a continued advance in global oil prices, one of the country’s biggest exports, helped underpin support for the currency.

The week ahead

Domestic highlights for the pound this week will include consumer inflation figures on Tuesday (9.30am). The latest release of UK unemployment data will follow on Wednesday at 9.30am, whilst retail sales figures will conclude the pound’s week on Thursday at 9.30am.

US economic influences will include retail sales data and consumer inflation data on Wednesday (1.30pm) with US industrial production following on Thursday at 2.15pm.

Euro interests will firstly turn to a second estimate of euro zone economic growth on Tuesday (10.00am). Industrial production data will also be heard on Tuesday at 10.00am. Consumer inflation figures are due for release on Thursday at 10.00am, whilst construction output data will follow on Friday at 10.00am.

View UK, US and euro zone announcements with our economic calendar

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Other key data releases:

Japanese GDP data (Tuesday, 11.50pm)

South African retail sales data (Wednesday, 11.00am)

Australian unemployment data (Thursday, 12.30am)

Swedish unemployment data (Thursday, 8.30am)

Canadian consumer inflation data (Friday, 1.30pm)

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