uesday’s GDP figures were considerably weaker-than-expected. The Eurozone economy expanded by a fairly meagre 0.2% in the third quarter of the year, its slowest pace of quarterly growth in four years and considerably slower than the 0.4% that economists anticipated. Italy’s performance was of particular cause for concern, with the country’s economy registering flat growth for the first time since 2014. While details of the GDP print will not be made available until mid-November, it is likely that global trade tensions may well have provided a drag on exports.

Policymakers in the currency bloc last week maintained a relatively upbeat tone over the state of the Eurozone economy, putting recent weakness down to idiosyncratic factors and not a sign of a sustained downtrend. Another weak Q4 number in line with the recent PMI data may, however, mean that it is only a matter of time before the ECB takes on a more dovish tone that would push back expectations for the first hike until deep into 2019. We think a GDP downgrade from the Governing Council at its next meeting in December is now very likely.

This morning’s Eurozone inflation numbers will provide the next test for the currency. We will be paying close attention to the core CPI figure for any signs of an uptrend towards the ECB’s target.

Pound slides as Brexit overshadows budget announcement

Sterling continued to slide lower against its peers yesterday, falling by over half a percent to a fresh two-and-half month low. Investors continued to ignore Philip Hammond’s budget announcement, which promised the end to austerity and an increase in growth next year. Brexit continues to dominate all else and, as we mentioned last week, further losses for the Pound look likely as long as the threat of a ‘no deal’ remains live. We do not expect this Thursday’s Bank of England meeting to be a massive market mover, although it is certainly worth keeping tabs on.

Meanwhile, a broadly weaker Euro and ongoing concerns over an escalation in the US-China trade conflict kept the US Dollar well supported around its strongest position in trade-weighted terms in two-and-a-half months yesterday. These concerns followed comments from Donald Trump on Monday, who warned that he had billions of dollars’ worth of new tariffs ready should a deal over trade not be struck with Asia’s largest economy.

Ahead of Friday’s nonfarm payrolls report, this afternoon’s ADP employment change number could shift the greenback.