14/10 – Fewer than 48hrs until Brexit deadline

GBP: Sterling starting to wake up

EUR: Spain and Netherlands increase virus measures

USD: Stimulus hopes remain distant

Sterling

It feels like sterling investors woke up to the fact that Boris Johnson’s Brexit deadline is a little more than 40hrs away and headlines remains unclear as to whether conditions will be met for the UK and EU to agree a trade deal, avoiding a no-deal Brexit.

Sterling’s descent yesterday was started by a comment from Boris Johnson to his Cabinet that the UK is ‘ready and willing’ for a no-deal outcome. The negative mood increased after Ireland’s Foreign Minister told reporters that he believed that there will no breakthrough at the European Council meeting this Thursday, and he was unwilling to “sell out” the continent’s fisherman whilst the UK’s internal market bill remained a possibility.

We expect further headlines over the course of the day although there is little way of knowing which way they will send the pound – we have our fears of course – as we head into the European Council meeting and deadline tomorrow.

Euro

We thought EURUSD looked heavy yesterday and were proved correct over the day’s trade as the pair fell comfortably back into the 1.17s.

While there are a number of ECB speakers today we expect the single currency to take its cues from the wider risk environment especially given changes in both Spain’s and the Netherlands’ coronavirus measures so as to guard against rising cases of the disease.

US Dollar

The dollar found some support in Asian markets overnight after building strength through yesterday’s European session.

As has been widely expected, stimulus talks don’t look to be going anywhere despite comments from both sides of political spectrum that another attempt will be made before the election. For us, the chances of a ‘blue wave’;  a democratic sweep of the White House, Senate and House of Representatives signifies the best chance of success on a stimulus bill and so, we may be waiting a while for additional support for the US economy.

Yesterday’s inflation measures from the US showed prices rising at their slowest pace for 4 months, a surefire sign that the slowing of the US recovery and the ultimately high levels of unemployment will continue weigh.

Producer prices are due this afternoon but will likely get lost in the fog of stimulus/election news.

Elsewhere

The RBNZ continued their game of cat and mouse with markets overnight over the possibility of negative interest rates in the country with one Assistant Governor telling a conference overnight that the central bank’s positioning is not a “game of bluff”.

Assistant Governor Hawkesby told investors that “the biggest challenge about having a negative policy rate is the communication challenge,” he said. “How to explain it to the general public, how to explain it as a policy, how to win the argument, how to retain hearts and minds that you’re doing the right thing for the right reasons.”

Current market pricing shows that investors believe the RBNZ will move rates below zero by April 2021.

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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.