Merkel causes brief spike for pound

21th August 2019 Market Update

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🇬🇧 GBP –  Sterling reacted positively yesterday to comments made by Angela Merkel that the European Union will remain united, but that they will think about ‘practical solutions’ to the Irish backstop. Markets initially interpreted this as a signal that a deal is more likely which reversed earlier losses against the Euro. The spike was attributed to algorithmic trading and after bouncing off the first resistance level, the Pound settled down in later trading.

Today features no data of relevance for the Pound and so politics will remain in the spotlight to direct market movement. Johnson will dine with Merkel this evening ahead of his meeting with Macron tomorrow.

🇪🇺 EUR – The Eurozone did not have any data releases yesterday which left Italian politics at the forefront. Prime Minister Conte announced his intention to resign as the fragile coalition between the Northern League and Five Star Movement parties came to an unceremonious end. This caused the Euro to dip slightly. The road ahead will become clear in the coming days, but the Eurozone will need to prepare for another battle over Italy’s budget plans.

The calendar is also empty for Eurozone data releases today and so rate movements are likely to be minimal.

🇺🇸 USD –  Following risk appetite improvements which boosted the US Dollar on Monday, the reverse occurred yesterday as the Greenback fell against the Japanese Yen and Swiss Franc as well as Sterling. With no data releases, market attention turned towards the upcoming Jackson Hole symposium of Central Bankers and the expectation that Fed Chair Jay Powell will deliver a dovish speech on Friday.

This evening sees the release of the latest FOMC minutes from the meeting which brought about the first interest rate cut since 2008. Analysts will be looking for any new insight on whether some members are pushing for further cuts in the months to come. In combination with the anticipation of the Jackson Hole speech from Powell, this could result in a retreat for the US Dollar.

 

Summary:

GBP: Sharp positive reaction to Merkel’s comments
EUR: Trouble ahead as Italian Prime Minister resigns
USD: FOMC minutes in focus


 

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Darren Kilner

Darren Kilner

Darren is Head of Dealing at FairFX. Darren lives and breaths FX, his Mastermind topics are G8 currencies and economic forecasts.

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