11/09 – Sterling continues Brexit falls

GBP: Bounce was a dead cat

EUR: ECB meeting a farce as euro powers higher

USD: Quiet ahead of CPI this afternoon

Sterling

Normal service was resumed for sterling yesterday with large falls for the pound across the board. While there were no specific Brexit headlines to put the frighteners on sterling, apart from the EU deadline of the end of the month of getting rid of the internal market bill that has caused such fallout, we know from previous experience that sterling doesn’t need an excuse to slide lower.

Certainly, deeper falls could easily continue through the coming sessions, especially if the noises from Westminster show that the UK refuses to back down from this recent legislation.

This morning’s run of data showed UK GDP rebounded in July but by slightly less than expected as services sector growth missed estimates. While restaurants, bars, pubs, and other hospitality venues were able to open their doors, many more businesses have remained shuttered and data suggests that consumers remain reticent to spend their leisure time how they might have done last year.

The economy is 12% smaller than it was pre-pandemic and it will be the speed with which that is recovered that denotes just how scarred this economy and its workforce is as we emerge from under the shadow of the virus.

Sterling is not paying the blindest bit of notice to the result; GDP figures are nowhere near as interesting as the political headlines emerging from Westminster. For the pound, Brexit is the only show in town and any developments in discussions will impact the pound considerably.

Euro

Yesterday’s European Central Bank meeting was a mess. As President Lagarde took to the stage to outline the Bank’s thoughts a leak from within the organisation told markets that they believed there was “no need to overreact to recent euro strength”; a red rag to the bulls that want a higher single currency.

While the ECB was always going to have a hard time keeping a currency stable through a press conference that had them saying that growth was stronger than expected, inflation was stable but that further stimulus could still be deployed, the surge in the euro will not have been welcome.

Clarification from the ECB’s Chief Economist Philip Lane overnight that there is no complacency within the ECB on inflation and/or the rate of the euro has taken some of the wind out of the euro’s sails against the USD but it remains at its strongest levels since March against the pound.

US Dollar

US dollar markets have largely been forgotten about in a week of ECB ups and downs and Westminster back to its worst but inflation figures from the States this afternoon could be enough to keep the USD on the back foot into the weekend.

Elsewhere

Outside of the three currencies above, things are relatively quiet with markets still unsure as to how to play a mix of lower tech stocks, increasing global growth and rising Covid-19 cases in the lead-in to the US election. Volatility is all but assured.

Have a great day and a better weekend.

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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.