• EUR/GBP drops to the 0.8900 area, near 3-month lows.
  • UK GDP came in above estimates today.
  • UK Industrial, Manufacturing Production surprised to the upside.

The renewed buying pressure around the Sterling is dragging EUR/GBP to the area of 3-month lows near the 0.8900 handle.

EUR/GBP weaker post-UK data

The European cross comes under renewed and moderate downside pressure on Monday in response to the better tone around GBP and steady/bearish stance from the single currency.

In fact, the British Pound met fresh buying interest after the GDP came in flat in the three months to July and expanded 0.3% on a monthly basis during July.

Adding shine to GBP, Industrial Production expanded at a monthly 0.1% during July, while Manufacturing Production expanded 0.3% inter-month. The Construction Output also bettered consensus, expanding 0.5% from a month earlier and the trade deficit widened to £9.14 billion albeit came in below forecasts.

On this side of the Channel, EUR remains under pressure despite the Sentix index ‘improved’ to -11.1 for the current month.

From the political scenario, UK PM B.Johnson said a no deal ‘would be a failure’ at his meeting with Ireland’s L.Varadkar in Dublin. In addition, the UK Parliament would be suspended on Monday after another vote to call for snap elections later today. However, the government is unlikely to pass the bill, rejecting B.Johnson’s idea to hold elections at some point in mid-October.

What to look for around GBP

Renewed upside momentum is pushing the Sterling to fresh tops in response to today’s auspicious data releases in the UK docket (finally). However, the Sterling is forecasted to remain under scrutiny as political effervescence is far from abated… and a Brexit deal looks still ages away from resolving. All eyes are now on the UK Parliament and another vote to call for early elections next month. On another direction, BoE’s Vlieghe ruled out negative interest rates and talked down the likeliness of a recession.

EUR/GBP key levels

The cross is retreating 0.53% at 0.8919 and a drop below 0.8904 (monthly low Sep.9) would expose 0.8891(monthly low Jul.25) and then 0.8839 (200-day SMA). On the upside, the next hurdle lines up at 0.9054 (55-day SMA) followed by 0.9088 (21-day SMA) and then 0.9148 (monthly high Sep.3).

Analysis team at the Royal Bank of Scotland notes that the US non-farm payrolls surprised on the downside in August, rising a tepid 130k, while the June and July were also marked down.

Key Quotes

“Taking into account temporary hiring for the 2020 census survey, the headline figure for August is overstated. The unemployment rate was unchanged at 3.7% in August. Encouragingly, the participation rate ticked higher to 63.2 last month , signalling more workers entered the labour force – a good sign for US growth near-term. Average earnings posted a decent 3.4% increase y/y in August.”

“Alongside modest inflation, real incomes increased healthily last month. The consumer appears alive and well, at least for now, lessening the chances of a 0.5% Fed funds cut later this month.”

In a recently published statement, the Irish government said Irish Prime Minister Varadkar and his British counterpart Bors Johnson had a constructive meeting.

"Ground was established in some areas between Irish and British PMs but significant gaps remain," the statement further read. "Irish and British PMs meeting was an essential and timely opportunity to better understand each other's position."

The GBP/USD pair eased slightly from its session highs and was last seen trading at 1.2363, adding 0.68% on a daily basis.

Chinese President Xi Jinping crossed the wires in the last minutes saying that they will continue to support the development of private firms.

"We will continue to promote high-quality development of trade," the president told China's Central Television (CCTV).

These comments don't seem to be having an impact on the market sentiment. As of writing, the 10-year US Treasury bond yield was up 2% on the day while the S&P 500 Futures was adding 0.22% to suggest that Wall Street is likely to start the day modestly higher.

Analysts at TD Securities note that China’s August trade data was generally weak, with exports falling -1.0% y/y (TD 5.7%, mkt 2.2%) and imports falling -5.6% y/y (TD -5.3%, mkt -5.6%), resulting in a smaller than expected trade surplus of $34.84bn from an upwardly revised surplus of $44.58bn in July.

Key Quotes

“China’s FX reserves rose by $3.48bn to $3.107trn in August. However, reserves growth would have been even bigger had it not been for adverse valuation effect (due to a stronger USD), which according to our estimates would have deflated reserves by $7.27bn in August. FX reserves would have grown by $10.75bn had it not been for adverse valuations.”

Saudi Energy Minister crossed the wires in the last minutes arguing that oil markets are driven by negative market sentiment but added that he doesn't believe that it's impacting the oil demand growth.

"People are speculating about global recession but there is no recession today," he added.

These comments had little to no impact on crude oil prices. As of writing, the barrel of West Texas Intermediate was trading at $56.90, adding 0.5% on a daily basis while the barrel of Brent was up 0.3% on the day at $61.85.