12th September 2019 Market Update
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🇬🇧 GBP – Sterling was relatively range-bound again yesterday, staying within reach of its recent 5-6 week highs versus the euro and dollar in the absence of any significant news flows during the course of European trading.
In the evening we saw the government release details of its report on the worst case scenario should there be a no deal Brexit, entitled Operation Yellowhammer. Key points in the government report suggests a shortage in supply of fresh food and key ingredients, price rises for food and fuel, disruption affecting medical suppliers and potential protests across the country.
Whilst there was little reaction in the currency markets following the release of the document, there has been a reaction by Labour who have said it is “more important than ever” that parliament is recalled to provide an opportunity to scrutinise the document and take necessary steps to stop a no-deal Brexit.
So all eyes now will likely be on any further reaction to the release of documents and if indeed there is a recall in parliament.
No data today and expectations of rate moves on the pound remain muted but as stated above clients would be buying euros and US dollars at 5-6 week highs.
🇪🇺 EUR – The euro dropped by 0.4% versus the US dollar yesterday ahead of today’s key announcement by Mario Draghi and the ECB.
All eyes will fall on the ECB at 12.45pm when the Bank is forecasted to cut interest rates by 0.1% to take the base rate down to -0.5% and then again at 1.30pm with the accompanying rate statement. The additional monetary stimulus measures do appear to be the main focus with the Bank expected to announce 30bn worth of asset purchases per month for one year; a decision that appears to be contested by members of the bundesbank as well as other local central bankers. This level of body buying appears to be priced with some analysts suggesting that it may not be enough to boost the Eurozone economy.
Whatever is announced we expect volatility in euro pairs throughout the course of the statement and any disappoint deemed by markets in Draghi’s announcement could cause the euro to weaken further.
🇺🇸 USD – No significant data from the US yesterday but we did see the US dollar gain across the board.
Focus today will fall on the inflation figures from the US especially ahead of next weeks Federal Reserve meeting. Markets currently expect inflation to remain at 1.8% and still expect a rate but of 0.25% next week by the Fed.
On the trade war front, Donald Trump has announced he will delay plans to hike the tariffs on US$250bn worth of goods from 25% to 30%; providing some hopes of a trade breakthrough.
GBP: Government report on no-deal Brexit released
EUR: Mario Draghi set to announce stimulus measures
USD: Trump delays increasing tariffs on China
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