08/09 – Brexit back to haunt the pound

GBP: 10 day low for GBPUSD

EUR: Can it hold up until Thursday

USD: Trump comments offer dollar support

Sterling

It took a couple of hours but by the midpoint of yesterday’s session sterling was feeling the effects of the overnight Brexit headlines, drawing down to its lowest level against the dollar for 10 days.

Political commentators are unsure whether the plans to try and circumvent the Withdrawal Agreement are a ploy to blow up the trade talks, to loosen the EU’s grip on its redlines or to keep Brexiteer members of the Conservative party in line following a summer of u-turns. I think it could be all three and as long Brexit news tops the headlines then sterling will remain unloved.

That is not to say that disastrous falls are just round the corner; as much as markets don’t want to be caught holding the pound if we move towards a no-deal scenario, they don’t want to be short the pound in the event we get a deal.

More sterling news came overnight with Bank of England Chief Economist Andy Haldane agreeing that the furlough scheme should come to an end saying that “keeping all those jobs on life support is in some ways prolonging the inevitable in a way that probably doesn’t help either the individual or the business.”

The scheme is set to conclude at the end of next month.

Euro

Data from the Eurozone this morning should confirm that the economy contracted by around 12% in Q2 with regional employment falling by around 3% over the same period. These are unlikely to move the needle on what markets expect from the European Central Bank come Thursday with President Lagarde’s comments the most important economic news of the week.

For now we expect the EUR to strengthen against sterling on Brexit travails and take some ground back against the USD.

US Dollar

With US equities closed yesterday for the Labor Day holiday the dollar was trading on weak signals but managed to eke out a gain through the session. Comments from Donald Trump on China supported the dollar, driving our belief that a Biden win come the November election should prove to be a dollar negative.

As London traders got to their desks, the dollar weakened sharply and while the motive for such a move remains unclear, could point to a volatile session ahead.

Elsewhere

The deteriorating level of agreement between the US and China is having a negative effect on oil prices with a barrel of crude now sitting at its lowest level since June. Commodity currencies are doing ok given those moves and could be primed for a rebound should President Trump’s rhetoric focus more on internal US matters as we move closer to the election.

Have a great day.

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Jeremy Thomson-Cook

Jeremy Thomson-Cook

Jeremy has over 13 years experience working in the FX industry. As a specialist in political risk mitigation and currency hedging, he regularly advises clients on the day-to-day moves of the markets and the implications of fiscal and monetary policy on international businesses.