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Sterling already had a wild ride in the previous trading session but its price action got even more exciting as the New York session rolled along. As it turned out, the EU might be warming up to the idea of a two-year Brexit transition period that could mean an easier adjustment for the U.K. economy.

  • U.S. headline PPI posted 0.4% gain in Sept as expected
  • U.S. core PPI also posted a 0.4% increase vs. projected 0.2% uptick
  • U.S. initial jobless claims edged down from 258K to 243K vs. 251K forecast
  • ECB official Coeure: Maintaining asset purchases for too long may bring imbalances
  • Coeure: Monetary policy may have to resort to non-standard measures
  • Barnier: EU may offer two-year transition if financial obligations are met
  • EIA crude oil inventories fell 2.7M barrels vs. projected 1.8M drop

Major Events/Reports

More Brexit-related updates

Just when it seemed that the U.K. economy might just have to grin and bear it throughout Brexit after top negotiator Barnier said that “no concessions” will be made, a German media outlet noted that a two-year transition period might still be granted if Brits are able to cough up the funds that the union is asking for.

News of a deadlock in negotiations hit the pound hard earlier on in the day, but Barner eventually said:

“I am still convinced that, with political will, decisive progress is within reach in the coming two months. With David Davis, we will organise several negotiating meetings between now and the end of the year.”

Tapering hints from ECB’s Coeure

In his speech during an event in Washington, European Central Bank director Benoit Coeure once again warned about the risks stemming from conducting asset purchases for too long.

In particular, he cautioned that central banks might risk destablizing the financial system if these bond-buying programs are extended, suggesting instead that non-standard monetary policy tools might need to be considered. He pointed out:

“A too protracted period of asset purchases, for example, may cause financial imbalances to build up with potentially adverse consequences for price stability.”

Keep in mind that this comes a few weeks before ECB officials have another huddle to discuss the fate of their 60 billion EUR monthly asset purchase program, with several market participants counting on a reduction before the end of the year.

However, ECB head Draghi didn’t sound as upbeat as his policymaker buddy when he highlighted the success of the central bank’s negative rate policy and QE. He also added that the pickup in wages might not be enough to sustain inflation gains just yet.

Upbeat U.S. data

On the economic data side of things, it was all good in the ‘hood for Uncle Sam, keeping dollar bulls in a good mood ahead of today’s official CPI and retail sales releases.

Headline PPI posted a 0.4% gain in producer prices for September as expected while the core reading surpassed expectations with a 0.4% increase versus the projected 0.2% uptick. The report also clarified that the recent hurricanes hardly affected data collection efforts.

Initial jobless claims edged down from 258K to 234K, lower than the projected 251K figure, marking the third consecutive weekly drop to show positive momentum in the jobs market.

Remarks from Fed officials

A handful of Fed officials stepped up to the podium to share their thoughts on monetary policy but these failed to spur a strong reaction from the Greenback as the FOMC minutes released earlier this week already shaped expectations.

Still it’s worth noting that Fed head contender Powell spoke of the dangers of relying too heavily on the dot plot forecast and how market watchers should take projections with a grain of salt. Then again he also assured that normalization would carry on as long as the economy maintains its pace of growth.

For Fed official Bullard, it is a “denial of reality” to think that inflation could return to normal levels. And by normal, he was referring to price levels back in the early 2000s. He also added that raising rates is a policy mistake and that the central bank should continue to push for the 2% inflation target.

Major Market Mover(s):

GBP

The pound had a reversal of fortune at the start of the U.S. session as the mood shifted when hints of a two-year Brexit transition period floated around.

Cable turned around upon hitting a low of 1.3132 then zoomed up to a high of 1.3267, GBP/JPY popped up from 147.30 to the 149.00 handle, EUR/GBP found resistance at .9033 then fell back to .8925.

EUR

The euro was unable to shake off its losses from the past few hours as Draghi’s speech failed to bolster tapering expectations.

EUR/USD edged lower to the 1.1825 area, EUR/JPY continued to slide to the 133.00 handle, EUR/AUD retreated to a low of 1.5112, and EUR/NZD fell to 1.6605.

Watch Out For:

  • 1:30 am GMT: RBA Financial Stability Review
  • Tentative: Chinese trade balance (266B CNY expected, 287B CNY previous)