Pound sensitive to Brexit developments

7th October 2019 Market Update

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🇬🇧 GBP –  Sterling marginally achieved its first weekly rise last week after 3 weeks of downward trend. However, the Pound finished in the lower ranges having been much higher in the lead up to the publishing of the Government’s Brexit plans and following suggestions that the EU would not require a letter requesting an extension to push the cliff edge date into next year. Sterling stayed resilient in the face of poor manufacturing, construction and service sector results which were all in contractionary territory and suggests that the UK could be heading towards recession.

This week is unremarkable for economic data from the UK. Nothing of note is published today and Carney’s speech tomorrow is on a topic unrelated to monetary policy. Thursday may provide movement with the release of Industrial and Manufacturing Production results for August. As ever though, Brexit will remain the key driver for the Pound and most expected volatility will come from the tone of the EU’s ongoing response to Johnson’s plans.

🇪🇺 EUR – Figures for the Eurozone were a mixed bag last week which did little to change opinions that the economy will need further intervention from the ECB to keep it moving. Manufacturing data was better than expected but remained in contraction while Services sector data was worse than expected but remained in expansion.
The single currency seemed to be moved by external factors from the UK and US more than of its own accord.
This trend is likely to continue into this week as the Eurozone published only mid tiered data. The ECB Monetary Policy Meeting Accounts on Thursday could move the Euro but given that the approach of the ECB is widely known, markets will probably not be significantly moved. Analysts are increasingly coming to the opinion that the Euro is set to suffer from a Brexit fall out as well as the Pound and are placing their funds elsewhere as a result.

🇺🇸 USD –  The US Dollar fought back on Friday after 3 straight days of losses following the closely watched jobs data. The Greenback had started the week on the front foot, benefitting from its safe haven status but this started to unravel in the midweek as concerns mounted about the health of the economy and labour sector. On Friday, the Non Farm Payroll data came in below the forecast but not as disastrous as the market feared and meant the unemployment rate is nearing a 50 year low. A Reuters poll published on Friday also showed that a significant majority of analysts expect the US Dollar to begin 2020 in a strong manner.
Jerome Powell will be doing the rounds with speeches in the early part of this week but they are unlikely to be of interest to currency markets. Wednesday will be a bigger day for the US Dollar as analysts will be looking for the JOLTS Survey to support last week’s jobs figures and the FOMC Minutes will be published in the evening which will provide a guide as to how many interest rate cuts can be expected in the next year. This will determine the direction of the US Dollar which seems to brush off most negative news currently.

 

Summary:

GBP: Crucial week for Brexit negotiations will affect Pound
EUR: Quiet week for Eurozone data which could hold Euro down
USD: FOMC Minutes will be in focus this week


 

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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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