4th October 2018 Market Update
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?? GBP – Sterling focus yesterday was on Prime Minister Theresa May’s Conservative Party Conference speech as investors looked for any indication towards the next step in Brexit negotiations. However, with nothing new of substance coming out of May’s speech, attention returned to her questionable dance moves which split opinion – with some arguing she should focus on more important matters, with others claiming ‘the Maybot’ to have the potential to be the next big dancefloor craze. While the speech failed to provide anything significant on Brexit, there was an interesting indication that austerity in the UK was coming to an end, in a preview of what may be a slightly more expansionary budget; something which has since been rebutted by Labour as unrealistic.
Indeed, whilst the Prime Minister may have been a little optimistic in her claims – she is not the only one who remains optimistic around Brexit and the future of Sterling. According to the latest Reuters poll of currency strategists – the Pound is set to be stronger by the time Britain leaves the EU and while it will fail to trade higher than pre-Brexit levels, optimists are declaring that the majority of bad news for Sterling, including a ‘no-deal’ Brexit, is currently priced in.
?? USD –The Dollar spent the night held at a six-week high following a series of positive speeches yesterday coming from members of the Federal Reserve as well as better than expected economic data. These two factors combined to send the US Dollar index (which measures the value of USD against a basket of foreign currencies) to a near 2018 high as the greenback continues to be well bid following last week’s FOMC meeting. This has been helped by speeches from Fed members, four of which spoke yesterday including Chairman Powell who declared that the Fed may raise rates above ‘neutral’ given the continued ‘remarkably positive’ US economic growth. Indeed, Powell’s claims were supported by data out yesterday which showed that the US service sector activity had accelerated to a 21 year high, while private sector hiring increased at the fastest pace in seven months in September. All of this positive data is holding the dollar in good stead leading up to tomorrows all important ‘Non-Farm Payrolls Data’ which will provide further insight into the dollar’s fortunes going forward.
?? EUR – The Euro, despite falling off slightly against the Dollar – had a relatively better day yesterday after reports emerged that Italy plans to cut its budget deficit after next year, helping to ease concerns over the Euro and its longevity. In fact, according to a Reuters poll of currency strategists across the industry, the budget news coming out of Italy is priced into the Euro, meaning that the balance of risks are in favour of the Euro moving higher from here. According to the poll of over 70 strategists, the Euro will trade higher at $1.16 in three months from its current level, and then up towards $1.22 in a year. Whilst these forecasts are to be taken with a pinch of salt, there appears to be a general consensus amongst analysts that the Euro will remain resilient in the immediate short term.
GBP: Theresa May, despite significant improvement on last year’s speech, fails to provide the Brexit insight markets were hoping for. Attention now reverts to upcoming Brexit talks;
USD: The Dollar continues to be well supported, both in terms of economic data, as well as quotes coming out of the Federal Reserve.
EUR: As Italy budget fears subside, Reuters poll indicates tilt towards a stronger Euro going forward.
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