The Bank of England meeting draws ever-closer but Thursday's big rebound in the pound shows it's still all about politics and Brexit. The New Zealand dollar was the top performer while the euro lagged. Chinese trade balance isn't on most economic calendars but it might be released early.
A report in the German press said that the EU's Barnier wants to offer Theresa May a two year transition period before the full Brexit. Cable had been slumping on the day but immediately shot to 1.3250 from 1.3175 and continued another 40 pips higher from there before running into resistance at 1.3300.
In a sense, the headline shouldn't come as a surprise. The term 'transition period' is a misnomer. The EU will basically offer the UK another two years in the EU, under all the same EU terms. There is no transitioning, it's the same old deal.
At the same time, it's the first actual attempt at negotiating from the EU. Up to this point, all the signals suggested they were intent on punishing the UK so as to dissuade anyone else from exiting. Still, this may prove to hardly be an effort to negotiate. What we did learn for sure is that any negotiation-positive headlines provide longer lasting pound gains than any hawkish BoE chatter. It will be interesting to compare that to BOE headlines in the weeks ahead as we sort out whether May or Carney is the hand guiding GBP. But before November's BoE decision/inflation report, stay tuned for the next week's crucial UK-EU talks.
In US news, PPI numbers were released Thursday and core measures were a touch on the high side. Normally, that wouldn't be notable but it sparked a 20-pip rally in the US dollar. It was later erased but the initial reaction underscores how sensitive the market will be to Friday's CPI report.
Another report that could move markets (and the Aussie) is the September China trade balance report at 0200 GMT. The balance is less-important than imports and exports, where are expected up 16.5% and 10.9%, respectively.