22th August 2017 Market Update
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?? GBP – Sterling continued to remain range bound against the major currencies yesterday, against a backdrop of very little data in the market. In focus yesterday was the first Brexit paper release which outlined its four key principles for negotiations, mainly surrounding free and frictionless trade of UK goods and services. It also issued a threat to the EU, saying that with €314bn worth of EU goods exported to the UK, it is in no one’s interest to see disruption and uncertainty.
The European commission has previously stated that talks cannot take place until an exit fee has been address among other things. David Davis is calling on Brussels to change the schedule to allow exit negotiations to take place alongside trade talks in order to speed up the process.
The paper is likely to be met head on, as the UK asks for a significant improvement on the current proposal, and the response from Brussels is expected to be harsh.
?? EUR – Again, the was no major data relating to the euro, which continues to stay dominant against the pound, staying below the 1.10 level. A drop of over €3.5bn in the Portuguese current account did not slow down euro momentum as the pair slid half a cent in afternoon trading. The euro also edged up 30 pips against the dollar, putting it on a 3 day high.
?? USD – The dollar has opened the week trading flat, with no data out from the states to move the market. The next really key data from the US is the Jack Hole Symposium which gets under way on Thursday. The tapering off of QE and tepid inflation are likely to dominate talks and dictate the rate movement for the greenback.
?? – 9.30am – Public Sector Net Borrowing. Today’s figure is expecting to see a drop of £5.9bn, indicating that UK accounts are in surplus. A negative figure in borrowing is likely to strength the pound.
?? – 10.00am – ZEW economic survey, this gives a general indication of how confident Eurozone businesses are and could impact on rate movement.
?? – 14.00pm – House Pricing Index. This is considered an important statistic, as the housing market is key to the US economy. The index is expected to stay flat at 0.4%, and a result either side is likely to see USD strength/weakness respectively.
Our View: Whether or not David Davis is able to convince Brussels to change the Brexit schedule may be viewed as a sign of things to come. If Davis fails to secure the desired timeline for the UK, investors may view this as a signal of more uncertainty and Sterling will likely weaken. Access to the single market and free trade is also considered absolutely vital for the UK economy, and the response from Brussels will be key for the UK and Sterling strength.
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