15/10 – GBP rallies as Brexit deadline set to sail past

GBP: Sterling starting to wake up

EUR: Spain and Netherlands increase virus measures

USD: Stimulus hopes remain distant

Sterling

Today is the day that Boris promised the British people a decision on Brexit; either a deal with the European Union or a realisation that enough time had been spent on negotiating and to begin preparations for a no-deal Brexit. It will come as a surprise to approximately nobody that this deadline seems to have evaporated with neither outcome any closer to fruition.

While the European Council meeting at which the final details were expected to be hammered out begins today, it seems more than likely that an extension from anywhere between a week and a month to the no-deal deadline will be put in place albeit without a further announcement as to when this new deadline now falls.

Sterling’s initial decline yesterday was swiftly bought back by a market that realised that a cliff-edge still exists but is no longer within a day’s trade and we expect sterling to remain tentatively around these levels until some form of clarity is forthcoming. EU leaders will begin arriving from 12.30 BST before the 2pm BST roundtable to kick off the summit.

Covid headlines are also supportive for sterling currently given the dichotomy of lockdown procedures between the UK and other parts of the European Union.

Euro

As with sterling, euro focus will fall on the goings on in Brussels this afternoon as EU leaders continue to debate the finer points of Brexit as we inch closer to the end of the transition period. While the outsized move was in sterling pairs yesterday, a stronger euro will also be seen in the event of an overt extension to negotiating time.

As above, things kick off in Brussels at around 2pm. Separately ECB President Lagarde speaks at 5pm.

US Dollar

Yesterday was a quiet day for the US dollar. There were some headlines from US Treasury Secretary Mnuchin which ultimately confirmed our expectations that another fiscal stimulus package is highly unlikely this side of the election and this overall mood will likely keep the USD from running too much weaker from here.

As it is Thursday, we are due another iteration of initial jobless claims data.

Analysts are expecting the decline of newly unemployed workers to continue however, we need to keep an eye out for any turn higher as businesses factor in a lack of stimulus and increasing viral infections and subsequent lockdowns as we enter the winter.

Jobless claims are due at 1.30pm.

One of the most divisive elections in modern history is coming to an end in the US and soon we will know who will take the oath of office on January 20th and lead the US for the next 4 years.

President Trump, battling both the polls and Covid-19, is down in the polls and his challenger former Vice President Biden looks set for what could be called a landslide win. As we will make clear, the votes may be only the beginning of a long battle over a contested result.

The US election is the most watched political event in the world and will have far reaching consequences for financial markets and currency. If you trade in US dollars, have US operations or have been affected by US trade policy – Chinese and other Asian suppliers – then this webinar will highlight what a change at the top in the US may mean for your business and margins moving forward.

Attendance is free but spaces are limited. The session will be recorded and available to watch a short time after the initial broadcast. You can register for the webinar here ( https://equals.email/t/5CSB-9SSE-2VNLD7-6PTYN-0/c.aspx )

Elsewhere

Australia’s dollar is lower this morning after a speech from the Reserve Bank of Australia Governor Phillip Lowe suggested the central bank were researching the effects of moving a quantitative easing program to purchase longer-dated bonds from the Australian government.

Whilst a number of countries have long had a QE program and some are talking about moving rates into negative territory, QE has not been fully imposed in Australia and so represents a potential driver of further weakness in local risk assets.

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.