Deal or No Deal?

17th September 2018 Market Update

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?? GBP - In what should be very familiar story by this point, the Pound’s fortunes are likely to be Brexit-led this week with the first of three EU summits set to begin on Wednesday in Austria. The focus for this summit will be to settle on the most effective way to prevent the return of a hard Irish border following both sides attempts to ‘de-dramatize’ the issue. From our perspective, despite both positive and negative Brexit headlines having an impact on the Pound in recent weeks, investors are holding out for tangible progress on the Brexit deal before fully engaging in the GBP recovery story. Saying that, GBP could have a strong week if, as expected - chief negotiator Michel Barnier is afforded a greater level of flexibility to reach a conclusion with his British counterparts following the summit.

Meanwhile, London mayor Sadiq Khan has called for a second referendum on Britain’s EU membership claiming that the Prime Minister’s negotiations had become ‘mired in confusion and deadlock.’ Similarly, Boris Johnson yesterday claimed Theresa May was leading Britain towards a ‘spectacular political car crash.’ As pressure increases on May, she has made clear her intention to stay the course despite her irritation at the talk of a leadership contest.

This weekend also saw May receive some welcome backing from two prominent pro-Brexit Conservatives in the form of Michael Gove and Liam Fox. The more support and the less political uncertainty we see for the Prime Minister, the greater the likelihood we will see the Pound on firmer footing.

?? USD - The Dollar held steady this morning as investors await news out of the White House with reports suggesting that President Trump is keen to move forward with tariffs on $200bn in Chinese goods. In response, it is believed China will decline to attend trade talks citing their reticence to negotiate ‘with a gun pointed to its head’. This latest news, following upbeat US economic data could see the Dollar continue to be well bid in the short term.

Looking ahead, USD is expected to see a relatively quiet week in terms of data, with reports on the housing sector later on this week set to draw some attention prior to the Federal Reserve’s interest rate increase next week that is almost certainly fully priced into the market at this point.

?? EUR - While there will likely be some Euro-focus on the Salzburg meetings, the European calendar this week is fairly light with the majority of impetus likely to come from a variety of ECB speakers. Today will see the release of European inflation data which is expected to remain flat at 2 percent, while investors await a speech by ECB President Mario Draghi tomorrow for any greater indication on the ECB’s forthcoming reinvestment policy.


Summary: This morning, both GBP and USD headlines are centred around the political art of deal-making;

  • GBP: More Brexit headlines as hopes towards an Irish border solution grow;
  • USD: Markets await President Donald Trump’s latest tactical implementation of ‘The Art of the Deal’, as trade negotiations with China continue.


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