FX round-up: Sterling drifts lower, Chinese yuan and US inflation in focus

Sterling began the week trading on the backfoot as investors bid their time ahead of the Monetary Policy Committee's decision on Bank Rate and the release of the quarterly Inflation Report, both on Thursday.

That was despite the Chancellor's assertion while delivering the Autumn Budget that the era of fiscal austerity was now coming to an end and news that the Office for Budget Responsibility had marked-up its projections for the rate of growth in gross domestic product in the UK for 2019 and 2020, versus its Spring forecasts, from 1.3% to 1.6% and from 1.3% to 1.4%, respectively.

Indeed, among other measures, Philip Hammond announced that increases in the personal tax allowance and in the threshold for higher rents would both be brought forward by a year, to April, although a mixed bag of data on consumer credit and lending from the Bank of England, earlier in the session, did little to help matters.

In the background meanwhile, the US dollar spot index was gaining on the back of stronger-than-expected readings on personal spending and core PCE prices for September.

To take note of as well, the Greenback was continuing to edge higher and nearing the psychological 7.0 mark, after Bloomberg reported that the US administration was planning to foist fresh tariffs on Beijing should talks with Chinese leader, Xi Jinping, fail.

As of 1648 BST, the US dollar spot index was ahead by 0.27% at 96.6150 - right below its 52-week high of 96.9840 - with Sterling down by 0.23% versus the US dollar at 1.27978 and by 0.24% against the euro to 1.13764.

According to the US Department of Commerce, personal spending rose at a 0.4% month-on-month clip in September, just as economists had expected.

However, government statisticians also bumped-up their estimates for spending over the prior two months.

In parallel, the latest reading on the 'core' price deflator for personal consumption expenditures, which was contained in the same report, came in at up by 0.15% month-on-month (consensus: 0.1%).

Arguably, the news out of China and on US inflation helped to underline two of global financial markets' most recent bugbears of late.

Back in the UK, the latest batch of figures from the BoE showed consumer credit was running at £0.8bn in September (consensus: £1.2bn), versus £1.2bn last month, even as the number of mortgage approvals at 65,300 edged past economists' forecasts for 64,800.

Weighing on the euro meanwhile was German Chancellor, Angela Merkel's CDU party's poor showing in regional elections in Hesse at the weekend.

On China, last Friday analysts at Bank of America-Merrill Lynch had told clients: "So far, the combination of trade wars and bad news out of China has caused us to trim only a couple tenths off regional and global growth.

"We expect the Chinese government to continue to roll out stimulus measures that match the weakness in the economy. This should help ensure a soft landing next year. However, the trade war still has a ways to go and it is much too early to judge the efficacy of the stimulus measures. Stay tuned."

Related to the above, at the start of the week reports said Chinese officials were mulling halving the tax on car purchases, even as analysts at Oxford Economics told clients they should expect the Asian giant's current account surplus to virtually disappear in 2019 and 2020.