Sterling jumped to an eight-day high on Thursday after the head of a group of eurosceptic lawmakers in Prime Minister Boris Johnson’s Conservative Party said the government’s latest Brexit proposals offered the possibility of a “tolerable deal”.
Traders remained unsure whether Johnson’s proposal to replace the Irish border “backstop” was going to morph into a final Brexit divorce agreement due to mixed messages coming from both sides. The so-called backstop is an insurance policy to prevent the return of a hard border on the island of Ireland, which has become the biggest hurdle to securing an agreement with Brussels.
The European Parliament Brexit group believes the new proposals “do not represent a basis for an agreement”. A senior European Union official said on Thursday that Johnson’s last-ditch Brexit proposal “can’t fly”.
Analysts say the market is largely sceptical that the EU will agree to Britain’s latest offer to avoid a no-deal departure from the European Union on Oct. 31. But with hedge funds covering some of their short bets against the pound, the currency has held at current levels.
The dollar fell to a four-week low against the yen and a one-week trough versus the euro on Thursday, as investors fretted that weakness in both U.S. manufacturing and service sectors could lead to a slowdown in the world’s largest economy.
Expectations that the U.S. economy would continue to outperform other major economies and put pressure on the Federal Reserve to slow its interest rate cutting cycle were dampened this week after weak manufacturing and service sector surveys.
Data on Thursday showed that the Institute for Supply Management’s services sector index fell to 52.6 in September from 56.4 the previous month. The survey’s employment index slid to 50.4 from 53.1 in August. September’s employment index was the lowest since February 2014.
The U.S. services data followed Tuesday’s U.S. manufacturing report, which presented a dire picture of the sector, with the ISM reading falling to its lowest level in more than 10 years.
13.30 – USD: Average Hourly Earnings MoM; Forecast at 0.3% against previous of 0.4%
13.30 – USD: Non-Farm Employment Change; Forecast at 140k against previous of 130k
13.30 – USD: Unemployment Rate; Forecast same as previous at 3.7%