The pound could not sustain its rally started during the Asian session on Thursday after discouraging comments on Brexit's progress by the EU chief negotiator pushed the currency down, making it the worst performer among its major peers. The pound's weakness, as well as US data on PPI and initial jobless claims, gave a lift to the dollar.
The fifth round of Brexit talks, which are to be temporarily suspended when the two-day EU summit starts on October 19, was not constructive enough for the negotiations to move to the next stage of trade talks according to the EU's Brexit negotiator Michel Barnier. Barnier, reporting in Brussels on Thursday, said that despite "new momentum" in the discussions, the divorce bill reached "a state of deadlock" as the UK was not ready to clarify the amount it should pay to leave the block. Therefore, he added, "I am not able in the current circumstances to propose next week to the European Council that we should start discussions on the future relationship." Earlier this week, the European Council President, Donald Tusk, said that talks on trade issues would not come until December the earliest.
Sterling tumbled by almost 1% on Barnier's comments, falling to a three-day low of $1.3120 before climbing to $1.3171.
The dollar reversed earlier losses generated after the FOMC meeting minutes released late on Wednesday projected a more dovish tone than expected, revealing that Fed policymakers were debating whether factors weighing on inflation are more persistent or not. The dollar's gains arose on the back of a weaker pound and on encouraging US PPI and initial jobless claims numbers.
Particularly, producer prices rose by 0.2 percentage points to 2.6% y/y in September, slightly surpassing the forecast of 2.5%. The core equivalent climbed to 2.2% y/y, while analysts expected the index to remain flat at 2.0%.
Regarding US jobless claims, the number of people applying for unemployment benefits for the first time, increased by 243,000 during the week ending October 7, exceeding expectations of 251,000. This was the smallest rise since late August and favorably compares to the previous post of 258,000, which was downwardly revised from 260,000. The 4-week average measure declined from 267,000 (revised downwards from 268,250) to 257,500.
Tomorrow, a report on US CPI will give a clearer picture on inflation, while retail sales data will provide some evidence on consumption.
The dollar index was trading 0.16% up at 93.16 after it picked at an intra-day high of 93.20. Dollar/yen was moving sideways around 112.37, being 0.10% down on the day.
The euro drifted lower by 0.16% on the day after rising to a more than a two-week high of $1.1879 earlier in the session. Better than expected readings on the Eurozone's industrial production did little for the currency, with industrial output growing by 3.8% y/y in August, above the forecast of 2.6% and the previous upwardly revised mark of 3.6%. On a monthly basis, the figure recorded the highest growth since the beginning of the year, climbing by 1.4% and surpassing projections for a moderate expansion of 0.5%. Political developments in Spain, though, were the under the spotlight as investors were waiting for the Catalan leader, Charles Puigdemont, to respond to warnings made yesterday by the Spanish Prime Minister, Mariano Rajoy, who called Catalonia to clarify its status of independence in five days (three more days would be given to revoke the region's decision if it indeed declared independence in violation of Spanish laws).
ECB chief Mario Draghi and the Fed Governors Lael Brainard and Jerome Powell will be giving speeches today. It could be the case that their comments will generate some market volatility.
Euro/pound moved up by 0.30% to 0.8991 after it reached a one-month high of 0.9032 earlier in the session.
The monthly oil report delivered by the Paris-based International Energy Agency highlighted that global demand for oil slowed down in 3Q17 mainly due to the impact of hurricanes. Forecasts for global demand, though, remained steady at 1.6% growth for 2017 and at 1.4% for 2018. On the other hand, global oil supply in September increased as non-OPEC output rose moderately, while OPEC production was unchanged. For 2018, analysts anticipate global supply to grow at the same pace as demand, rebalancing the market.
WTI crude and Brent gave up gains earned the last two days following the report, with the former falling by 1.83% to $50.36 per barrel and the latter retreating by 1.32% to $56.19. The EIA weekly report, that among others includes information on crude stockpiles, will be released soon.
Gold gained 0.13%, trading at $1,292.60 per ounce.