Sterling range-bound as market waits next news on Brexit

Today’s macro highlights:

GBP - Inflation Expectations

EUR - Q2 GDP revision

USD - Non-farm payrolls (August)

Thursday’s trade proved to be a rather muted session for major currencies, with little overall direction being seen. A notable shortfall in German factory orders precipitated gains for Sterling over the Euro, but the overshoot in the US non-manufacturing ISM print left the market generally unmoved. It really does seem as if the political spectrum - those ongoing US/Canadian trade talks, progress with the UK’s Brexit negotiations and maybe even the looming Italian budget - are what really matters to the market right now. The macroeconomic fundamentals are, in the meantime, finding themselves relegated to the second division.

9.30am BST today sees the release of the UK Inflation expectation figures. As noted above, there’s some doubt as to whether a reading like this has the potential to shift the underlying market given the current climate. That said, a figure much above 2.5% would raise questions as to just how long the Bank of England can afford to sit on its hands before coming through with another rate hike. Waiting until next summer if inflationary pressures are expected to build could prove difficult and this may be sufficient to serve up a little support for the Pound, at least in the short term.

At 10am BST we have the latest revisions to the Eurozone’s Q2 GDP figures. There’s no expectation of any change here and with a quarterly reading of 0.4% having been announced previously, it’s unlikely that any update would be sufficient to register an impact on the common currency. Beyond this - and excepting any political surprises - it could well prove to be a case of a quiet end to the week for the common currency, although the potential impact of news from the US shouldn’t be ignored, either.

Across the Atlantic and being the first Friday of a new month, the big event today is the publication of US non-farm payrolls, plus other accompanying data points. The US economy is continuing to motor ahead, so even a shortfall in the payroll reading is unlikely to prove distracting for the dollar’s fortunes - a Federal Reserve rate hike this month will still be seen as inevitable. Perhaps more significant however will be the hourly earnings growth figure as any slowdown here may call into question the speed at which the Fed can continue to act beyond the next meeting. The market remains unconvinced that we’ll see another move in December, or what lies ahead in 2019. A dip in wages could therefore provide a bout of volatility going into the weekend break, with the dollar losing ground as a result.

GBP/USD

Yesterday proved to be a rangebound session for GBP/USD, although the pair is closing in on re-testing the highs struck on Wednesday. Progress with both Brexit and US trade talks will continue to dominate sentiment here.

EUR/USD

There has been very little movement seen on the pair since Thursday afternoon, underlining the fact that the market is waiting for the next data point. It’s worth bearing in mind that this could precipitate a meaningful breakout and certainly any shortfall in those US/Canada trade talks may end up driving the common currency higher.

GBP/EUR

Again, rangebound in the wake of yesterday morning’s modest rally. Any further clarity over how Brexit unfolds has the potential to lend meaningful support to Sterling.