FX round-up: Sterling hit by warning from S&P, poor euro area data

Sterling was trading on the back foot on Tuesday, after ratings agency Standard&Poor's warned that a 'no-deal' Brexit was likely to tip the country into a recession, which might last more than a year.

Britain crashing out of the European Union was not S&P's base case, but the chances of a such scenario finally coming to pass were sufficiently high that it was now taking into account when analysing the UK's credit worthiness.

Adding to Sterling's woes, Eurostat reported that economic growth in the single currency bloc - the UK's largest trading partner - over the three months to September had halved in comparison to the prior three-month stretch, from 0.4% to 0.2%, resulting in an unusual two tenths of a percentage point miss versus the median consensus forecast.

Against that backdrop, as of 1956 GMT the pound was down by 0.64% to 1.27107 US dollars and by 0.40% against the euro to 1.1204.

To take note of, traders were waiting on the Monetary Policy Committee's decision on Bank Rate and quarterly Inflation Report, both of which were scheduled for release on Thursday.

In the background, the US dollar spot index was ahead by 0.42% to 96.9870, having hit a fresh 52-week high of 97.0200 earlier during the session.

The US currency was also making inroads against the Chinese yuan, adding 0.07% to 6.9672, even amid reports that Beijing might tap its foreign exchange reserves in order to brake the slide in the yuan.

Yet against the Russian rouble, the US dollar shed 0.44% to 65.5528, on its cross with the Brazilian real it was down by 0.77% at 3.6912, against the Turkish lira it lost 1.57% to 5.4739 and versus the Argentine peso it declined 0.47% to 36,7370.

US data was mixed, although the Conference Board's consumer confidence gauge did climb back to its September 2000 highs, rising by 2.6 points to 137.9 (consensus: 135.9), on the back of increased confidence in the jobs market.

That prompted Mickey Levy, at Berenberg Capital Markets, to tell clients: "We have placed a heavy weight on sentiment indicators, with our research showing that they are reliable indicators of activity when very high. For now, the multi-year high in consumer confidence suggests that the strong momentum in real consumption (increased by 4% annualized in Q3) is carrying over to Q4 and the important holiday shopping season."

Standard&Poor's CoreLogic Case-Shiller home price index on the other hand slowed further in August, with the year-on-year rate of gains slipping from the 6.0% clip seen in July to 5.8%.

Commenting on the data, Matthew Pointon at Capital Economics said that the chance of a "more severe" house price correction was "low", especially given tight supply.

For the market as a whole, at the current pace of sales, the inventory of homes remained at just 4.4 months, he explained.

"That's significantly below its long-run average, and based on past form that implies a house price crash is unlikely. We expect prices to slow to 5% by the end of this year, and 2% in 2019."