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Comments from central bankers leave the market to ponder next steps.

Sterling off the highs following cautious interest rate comments

Yesterday we saw Sterling advance to its highest level against the US Dollar in 3 weeks and a fresh 2 month following the movement on Wednesday afternoon surrounding an easing of Brexit tensions. However, later in the day it gave up part of these gains as two members of the Bank of England’s MPC members provided a slight cautious tone. Tenreyro stated that inflation should be temporary, and she also warned that an interest rate increase to combat one-off price increases would be self-defeating. In the meantime, Mann also stated that the central bank can hold off raising rates due to the increase in market rates. What this does highlight is that there is a split in the opinions of the MPC and as a result rhetoric from members will be closely monitored for further clues.

There are no major data release from the UK today so the market will continue to focus on Brexit discussions.

US Labor data continues to print mixed signals

The US Dollar held firm against the single currency yesterday as the weekly jobless claims numbers slightly contradicted what we saw during the monthly figures. The US initial jobless claims declined to an 18-month low whilst continuing claims also declined beating forecast. The figure has underpinned confidence in the labour market which helped offset underlying concerns over the impact of higher energy costs and is likely to be taken into consideration tapering decision for November.

Following the consumer inflation numbers on Wednesday, yesterday we saw the factory gate inflation figures. The annualised figure posted a year-on-year rate strengthening to 8.6% from 8.3% and in line with consensus forecasts and not a huge surprise given the raise in commodity prices. Factory gate inflation can sometimes be seen as future consumer inflation as price hikes are passed down the chain. The elevated level suggest that inflation will be elevated for some time.

The day ahead has a busy release schedule from the US. Retail sales top the docket and is expected to show a decline in spending which would be consistent with the deceleration observed over the summer months. In addition to the headline retail sales, we have the Empire State Manufacturing and University of Michigan consumer sentiment measure.

Hawkish comments from ECB signpost potential date for the end of bond purchasing programme

It was the turn of European Central Bank policymaker and Dutch Central Bank chief Klass Knot to speak yesterday. Knot, known for his reputation as a hawk, commented that Eurozone inflation could exceed expectations in the short and medium term, arguing that this outlook provides a strong case for the ECB to end its emergency bond purchasing programme next March. He further commented that inflation risks linked to supply-side bottlenecks remain to the upside but even if these risks do not transpire the central banks inflation projection could permit an end to the Pandemic Emergency Purchase Programme. We saw no immediate reaction to Euro following these comments.

Looking ahead at today, it is another quiet day on the macro-calendar for Eurozone data. As such, eyes will be focus across the Atlantic for key releases from the US.

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