Evening Market Summary: Jittery Pound Advances Ahead of 5 PM Statement

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Brittish Prime Minister Theresa May speaks during an international conference on Somalia at the Lancaster House in London on May 11, 2017. (DOD photo by U.S. Staff Sgt. Jette Carr)

Jittery Pound Advances Ahead of 5 PM Statement

The pound, unsurprisingly, has had a volatile session ahead of May’s attempt to push the Brexit deal through her Cabinet. Whilst investors await the results of the main event, sterling traded through 150 points versus the dollar as volatility surged. There was also some high impacting economic data to capture trader’s attention.

Jittery pound traders sent sterling tumbling in early trade as CPI data showed that inflation remained stubbornly in place at 2.4%. This fell short of expectations of a tick higher to 2.5% in October. Even on a monthly basis inflation remained constant at 0.1%.  Slowing or at least steadying inflation is great news for the UK consumer, who is also enjoying the fastest pace of wage growth in a decade. However, interest rates returning to the 2% target faster than forecast decreases the likelihood of a rate rise by the BoE. Prices of food and clothing fell, offsetting increases in utility bills and petrol. It’s also worth keeping in mind that oil has been an inflationary influence since July last year. However, with oil down almost 20% since the beginning of October that looks set to change, meaning weaker inflation could be in the pipeline. But let’s not forget that falling inflation is only relevant should an orderly Brexit be agreed.

US Core CPI data was a saving grace for the pound. US core inflation also came in weaker than forecast at 2.1%, rather than remaining constant as expected at 2.2%. The disappointing figure was enough to cause a wobble in the dollar, allowing the pound to move higher. Despite the data, the pound is firmly focused on the door at no. 10.

At the time of writing the pound was climbing steadily higher on reports that Theresa May will make an announcement at 17:00 GMT. The market is growing in confidence that Theresa May can do and has done what is necessary to draw her Cabinet behind her. Should May achieve this we expect to see a relief rally towards $1.32. However, there is still more work to be done when the Brexit deal faces a vote in Parliament. Only if it clears it through Parliament can we expect to see the pound push back towards $1.40.

Stronger pound & weaker miners weigh on FTSE

As the pound was edging higher towards the close of the European session, the FTSE was grinding lower. Miners dominated the lower reaches of the FTSE, weighed down by a downgrade to Rio Tinto. Meanwhile, Betting stocks were clear winners following a government climbdown over fixed odds betting terminals. The likes of Paddy Power rallied an impressive 6%. Although this was trumped by Micro Focus International which gained over 7% on an upgrade from Goldman Sachs.