Daily FX Update – 10th October 2017
Just as the Pound seemed to (unnaturally) find its footing, accelerating well beyond recent highs and frankly above levels we’d expected it to, last week served as a pertinent reminder that there is more to the markets than the perceived normalisation of monetary policy and that over the longer term, fundamentals remain in charge. Both construction and manufacturing sectors disappointed, and if that wasn’t enough, a disastrous sequence of events for Theresa May left echoes of a coup towards the end of the week, which saw Sterling relinquish all its previous weekly gains against its peers.
The start of this week was a little better for the Pound as the Prime Minister’s rather risky strategy of outing Grant Shapps, actually reversed her fortunes and a solidarity in the wider party eased fears of a potential PM step down. The Pound regained ground above 1.3100 against its US counterpart, but the bias still remains negative.
The US Dollar has returned to the party amidst fallout elsewhere, despite a non-farm payroll headline that on the surface of it looked appalling. Whilst jobs were lost for the first time since 2010, unemployment fell to 4.2% and wages rose by 0.5%. Furthermore, there were positive revisions for the last two months so even though the figure is ultimately being put down to the hurricanes, even if it wasn’t, overall this key macroeconomic fundamental remains strong and only an absolutely disastrous print next month would put this in doubt. Fundamentals remain consistently strong in the US which has rightly reignited hopes of another interest rate hike before the year is out.
Focus returns back to UK fundamentals today with the release of manufacturing and industrial output numbers, as well as the trade balance. Catalonia unrest and Brexit continue to remain on the radar with the farmer’s parliament deciding on whether to declare independence or not. Liquidity should also return to normal today with the US back in the office.
Have a good day.