The pound was the worst performing major currency in Thursday’s European session as speculation mounted about whether the UK prime minister would resign. The euro also underperformed as the European Central Bank’s September meeting minutes showed policymakers wanted to maintain a "highly accommodative" monetary policy once tightening gets underway. The US dollar meanwhile was broadly firmer after another batch of solid US data.
Fears about the possible resignation of British Prime Minister Theresa May were heightened today following a party conference speech on Wednesday that was marred by a series of mishaps. In what was meant to be a keynote speech aimed at uniting her party that has been gripped by infighting over Brexit and leadership, May’s annual address to the Conservatives only contributed to talk of her departure. Also weighing on the pound were growing concerns that the UK is headed for a ‘hard’ Brexit amid lack of progress in the negotiations with the EU.
The pound fell to a near 4-week low of $1.3126, to stand 0.9% lower on the day in late European session. It was also sharply down against the euro and the yen. The single currency gained 0.6% versus sterling and was last up at 0.8926, while against the yen, the pound tumbled by more than 1% to a three-week low of 147.66.
The euro wasn’t having a much better day either as dovish signals from the ECB and renewed threat of political instability dragged on the currency. The ECB’s account of the September policy meeting indicated there was growing concern by Governing Council members about the appreciating exchange rate, which was creating "a source of uncertainty" and requires "close monitoring". The minutes confirmed policymakers had begun discussions on reducing the size of the asset purchases and that the bulk of the decisions will be made at the October meeting.
Governing Council member Ewald Nowotny further reinforced expectations of tighter policy in the coming months. In an interview for an Austrian magazine, Nowotny said "I assume that we will transition to a cautious deceleration at the start of the coming year".
Meanwhile in Spain, the situation in Catalonia showed no sign of deescalating. Spain’s Constitutional Court today suspended the Catalan parliamentary session scheduled for Monday when the regional government was due to meet to decide on declaring independence.
The euro slid by about 0.4% to a session low of 1.1711 against the dollar and was down by 0.5% against the yen at 131.84.
The US dollar was stuck in a tight range against the yen today and saw only muted reaction to economic data out of the United States. Initial jobless claims fell from 272k to 260k in the week ending September 30, beating estimates of 265k. August trade data also surprised to the upside, with the deficit shrinking to $42.40 billion from $43.60 billion. It compares with forecasts of a deficit of $42.70 billion. Factory orders completed the hat trick as they rose by 1.2% month-on-month in August, surpassing expectations of a 1.0% increase and follows a 3.3% drop in the prior month.
The greenback was slightly down versus the yen at 112.62 at the start of US trading, but it’s broader measure, the dollar index was firmer, climbing 0.4% to 93.83. The dollar index was lifted by hawkish comments from Fed officials.
Speaking to CNBC, Philadelphia Fed President Patrick Harker today repeated that he expects one more rate rise this year and three in 2018. This view on the rate hike path was shared by San Francisco Fed President John Williams, who said he still expects low unemployment to drive up wages, which should push up inflation.
In other currencies, the Australian and Canadian dollars were both lower against their US counterpart on Thursday. The aussie extended its Asian session losses to drop below the 0.78 handle following worse-than-expected retail sales figures out of Australia earlier in the day. It was last down 0.8% at $0.7798.
The Canadian dollar touched a five-week low as expectations of further rate hikes by the Bank of Canada this year continued to recede. Canada posted a much larger-than-forecast trade deficit in August of C$3.41 billion, further dampening sentiment on the loonie. The greenback was last up 0.5% at C$1.2538, with a jump in oil prices providing little boost for the loonie.
Oil prices surged by around 2% today after Russia and Saudi Arabia suggested that the current deal between OPEC/non-OPEC countries to cap output could be extended until the end of 2018. WTI crude rose was last trading at $50.91 a barrel, while Brent crude was at $56.89 a barrel.
