Dollar ends lower on risk aversion, sterling rallies on continued Brexit deal hope

Market Review - 17/10/2019  00:09GMT  

Dollar ends lower on risk aversion, sterling rallies on continued Brexit deal hope

The greenback ended the day lower against majority of its peers on risk aversion after comments from China's Foreign Ministry together with weak U.S. retail sales data. Sterling rallied across the board in volatile trading on speculation that EU and UK were nearing a deal on Brexit.  
  
Reuters reported China's foreign ministry said on Wednesday that Beijing resolutely opposed new measures passed by the U.S. House of Representatives related to the Hong Kong protests and urged lawmakers to stop interfering.  China's relationship with the United States will be damaged should the legislation become law, foreign ministry spokesman Geng Shuang said in a statement.  The Hong Kong Human Rights and Democracy Act, one of the measures passed by the House, would require the U.S. secretary of state to certify each year that Hong Kong retained its autonomy in order to receive special treatment as a major financial center.  
  
Reuters reported U.S. retail sales fell for the first time in seven months in September, which could raise fears that manufacturing-led weakness was spreading to the broader economy, keeping the Federal Reserve on course to cut interest rates again this month.  The Commerce Department said on Wednesday retail sales dropped 0.3% last month as households cut back spending on motor vehicles, building materials, hobbies and online purchases. That was the first and biggest drop since February.  Data for August was revised up to show retail sales gaining 0.6% instead of 0.4% as previously reported. Economists polled by Reuters had forecast retail sales would climb 0.3% in September. Compared to September last year, retail sales increased 4.1%.  
  
Versus the Japanese yen, dollar dropped in Asian morning to 108.61 on comments from China's Foreign Ministry, then marginally lower to 108.60 in European morning. Price then rebounded to 108.80 in New York morning before dropping to session lows at 108.57 on the release of weak U.S. retail sales data. Later, the pair recovered to 108.84 before moving broadly sideways.  
  
The single currency traded with a firm bias and rose in tandem with sterling to 1.1059 at European open due partly to reports that Germany may drop balanced budget goal if economic downturn deepens. Price then pared its gains and dropped to an intra-day low at 1.1023 in European morning, however, the pair then rallied to a near 1-month high at 1.1085 on usd's weakness together with Brexit deal hop before easing.  
  
The British pound went through a roller-coaster session on news-driven day. Despite initial rebound to 1.2788 at European open on positive Brexit news, price fell to 1.2673 in early European morning, then lower to an intra-day low at 1.2655 (Reuters) on reports that EU and UK negotiators hit a stumbling block in negotiations. However, cable swiftly erased its losses and recovered to 1.2786 ahead of New York open on comments from EU's Barnier. Price then jumped to 1.2840 as a RTE reporter said the main stumbling block to a deal has been removed before retreating sharply to 1.2755 as Northern Ireland's DUP denied this news. Cable then found renewed buying and rose to an fresh near 5-month high at 1.2877 in New York before easing on profit-taking.  
  
Reuters reported talks between the EU and Britain to seal a Brexit divorce deal this week have hit a "standstill", according to sources in the bloc.  Disagreements centre on a future trade deal and the rejection by Northern Ireland's Democratic Unionist Party of customs solutions tentatively agreed by negotiators for the Irish border.    
Reuters reported the European Union's chief negotiator, Michel Barnier, has told commissioners he is optimistic of getting a deal done on Wednesday, RTE reporter Tony Connelly said.  "Michel Barnier has told EU Commissioners he is optimistic of getting a deal done today," Connelly said.  "It's understood officials are confident that a solution can be found" on VAT. "It's understood consent is also proving difficult, with a senior EU source saying the DUP are pushing to restore a tighter Stormont lock."    
Reuters reported the leader of the DUP, a small Northern Irish party backing Britain's minority government, dismissed a report on Wednesday that it had accepted the latest proposals on the role the region would play in how Northern Ireland is treated after Brexit.    
"'EU sources' are talking nonsense. Discussions continue. Needs to be a sensible deal which unionists and nationalists can support," Arlene Foster said on Twitter, shortly after the report on Twitter by Tony Connelly, Europe Editor with Irish national broadcaster RTE.  Connelly quoted two senior EU sources as saying the main stumbling block to a Brexit deal between the United Kingdom and the European Union had been removed with the DUP backing the latest proposals on consent for Northern Ireland.  
  
On the data front, Reuters reported Britain's inflation rate failed to rise as expected last month as petrol prices fell at the fastest rate in more than three years, a boost to consumers ahead of Brexit.  Consumer prices rose at an annual rate of 1.7% in September, matching August's rate that was the lowest since December 2016, the Office for National Statistics said on Wednesday. A Reuters poll of economists had pointed to a 1.8% increase.  The figures suggest the Bank of England's forecast in August that inflation would average 1.6% in the final quarter of this year looks on track.  
  
Data to be released on Thursday:  
  
Australia employment change, unemployment rate, Swiss trade balance, exports, imports, Italy trade balance, trade balance non-EU, UK retail sales, retail ex-fuel, EU construction output, U.S. building permits, housing starts, initial jobless claims, industrial production, capacity utilization, manufacturing output and Canada manufacturing sales, ADP employment change.