Sterling advances

Soundings around a possible Brexit deal became increasingly positive yesterday, fuelling optimism that an agreement could be reached between the UK and the EU and prompting another leg higher in the pound which strengthened to an intra-day high of around 86.25p against the euro and almost $1.28 against the dollar. The euro-dollar exchange rate remains in the shade, as the excitement lies elsewhere, and continues to hover around the $1.1050 level

The important note of caution in relation to any Brexit deal that might be struck over the next 24 hours or so in time for the European Council summit starting tomorrow is the challenging (to say the least) arithmetic facing the UK government in getting a deal through Parliament. Indeed, the BBC is reporting that the DUP may not be on board for a deal, which is taking a little of the shine off sterling first thing this morning

Bank of England MPOC member, Vlieghe, in a speech yesterday, suggested that even in the case of an immediate Brexit deal, the argument for any near-term increase in interest rates had evaporated as slack in the UK  economy has increased this year while the global outlook has deteriorated. In a scenario where the UK faces “entrenched” Brexit uncertainty, “some monetary stimulus” (i.e. a cut in interest rates) would be required, and ditto in the case of a ‘no deal’ exit in his view

The latest labour market data in the UK showed the unemployment rate ticking up a touch to 3.9% over the June-August period while the annual rate of growth in earnings nudged down (though the recent dip in inflation is supporting earnings in real terms)

Data due today CPI inflation in the Euro area and the UK with retail sales scheduled in the US