22nd November 2018 Market Update
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?? GBP – The general sentiment around the short term Brexit implications appear to have taken a positive step as Theresa May’s negotiations with Jean-Claude Juncker in Brussels are said to be progressing. On the table at the moment is the political declaration that will set out the basis for economic, security and defence cooperation from 2021 onwards, and as of this morning; sources close to the PM indicate that they were likely to come to an agreement by Sunday. Coupled with the indication that Theresa May has navigated the immediate attempts to dislodge her as Party leader, there are certainly a few things for Sterling bulls to cling on to despite a weaker Pound. This is most likely because of the rather large elephant in the room that is whether May can get her deal through parliament. As it stands the numbers do not favour the beleaguered PM, but credit where its due – she continues to fight on. Separately, there is a growing voice for a People’s Vote on Brexit for which the options are: 1. Leave the EU as part of the current deal or 2. Remain. Were this to happen, the outcome would still be close, but we would likely see a surprise Sterling move upwards if so.
?? USD – The Dollar’s most significant influencing factor over the past few sessions has been the Equity markets and the cautiously optimistic sentiment towards them. The way safe-haven demand works is that when investors aren’t confident about where the market is going, they withdraw their investment in stocks and shares and instead keep their money in Cash securities, most often the Dollar. So when the market is doing well, Dollar demand is reduced; when it is doing poorly, Dollar demand is increased. Another key influencing factor is interest rates, a topic around which there has been a lot of debate recently as investors try to assess how often the Fed will increase rates in 2019. Yesterday reports that the Fed could pause its rate rise cycle caused the Dollar to weaken. Following this, it has remained weak this morning as safe-haven demand fell slightly of the back of the small recovery staged in US markets yesterday. Looking ahead, today is Thanksgiving and so US markets will be closed; often our clients find this is an opportune time to leave limit orders as the thinly traded markets are volatile, and so desired rates become a great deal more achievable.
?? EUR – In the wacky world of Foreign Exchange, things are very nearly impossible to predict. A case in point is yesterday’s news that the European Commission was set to instigate their Excessive Deficit Procedure on Italy’s debt levels. Now while logic would dictate that this would have caused the Euro to weaken, instead it strengthened as it appears that this widely expected event had been priced into the market. In addition, Italian PM Giuseppe Conte expressed concerns about the government’s bond spread and pledged reforms, which may indicate a greater willingness to negotiate. I would guess that despite the situation remaining somewhat tense, there are incentives for both sides to reach a resolution which is perhaps why the Euro is not as weak as expected. Looking ahead, tomorrow will see the release of important French and German PMIs which have the ability to confirm or contradict the overall slowing growth picture within the Eurozone.
GBP: Despite slow and steady Brexit progress, the Pound remains weak over concerns around the ability of PM Theresa May’s Brexit deal getting through parliament;
USD: Dollar slightly weaker following return of risk-on sentiment in Equity markets, as well as fears around the Fed’s interest rate path going into 2019;
EUR: Euro stronger despite the initiation of ‘Excessive Deficit Procedure’ against Italian government.
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