17/09 – Sterling set for volatile day

GBP: Brexit and BOE headlines will make for a volatile today

EUR: Broken lower ahead of inflation data

USD: Stronger after Fed heads for the sidelines

Sterling

It’s all go for sterling today with Brexit headlines and Bank of England meeting guaranteeing that wherever sterling pairs start the day, they are unlikely to finish in the same place.

Sterling ran higher yesterday seemingly on reports that the government was considering changing parts of its Internal Market bill – the piece of legislation that threatens upcoming talks with the EU – in a way to acquiesce the rebels within the Conservative party ahead of next week’s votes.

While political harmony is always something to aim for, the fact that the EU may still be unhappy with the bill and therefore still feel that the government’s moves endanger the Good Friday/Belfast Agreement means that we cannot bank those sterling gains just yet.

As both Politico and the FT are reporting today “Given the Neill amendment doesn’t actually stop the bill from breaching international law, and if anything, together with the judicial review amendment, makes it less likely the courts could block any attempt to rip up the Withdrawal Agreement, EU chief negotiator Michel Barnier faces a big call over the next few days. Asked whether the parliamentary “lock” would address Brussels’ concerns, one EU official tells the FT: “No, no no.” Brussels wanted Johnson to remove all offending powers, they said, not “put them in an ‘emergency use only box’ that MPs can unseal at a moment’s notice.”

Noon today will also see the Bank of England’s latest policy meeting that is expected to keep policy on hold but continue to signal a willingness on Threadneedle St to add additional stimulus to the UK economy if inflation continues to run below target and given the upcoming political decisions that could pitch the economy violently one way or the other.

Euro

A punch of USD strength and nothing to support the euro has pushed EURUSD back down through the 1.18 level while GBPEUR is floating around the 1.10 mark this morning. We will be keeping an eye on European CPI this morning given the focus from last week’s ECB meeting that additional stimulus would be needed should inflation levels continue to disappoint over the ECB’s forecast horizon of the next two years.

US Dollar

The Federal Reserve’s latest meeting confirmed our belief that central banks are going to become less of a stalwart of price movements in FX in the coming month as most sit on their hands and wait for the evolution of a recovery or on the basis that their respective economies are weakening and further stimulus is therefore necessary.

We are not in either of those scenarios currently and hence the Federal Reserve’s decision to leave their rhetoric as they had announced at the Jackson Hole economic symposium a few weeks ago. The lack of new dovish language allowed the USD to strengthen slightly overnight but this is not a move that anyone will be hanging their hat as something that could drive a new trend for a stronger USD.

Today is Thursday so US jobless claims figures will be announced later today with the trend continuing to show a slow returning to work and a need for more employment support for a large number of US citizens.

Elsewhere

Today’s market is very much a market reacting to the Federal Reserve announcements last night and as such, the push higher in the USD is the main driving force.

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.