Secret Brexit Talks
6th February 2019 Market Update
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?? GBP - Sterling remains on the backfoot this morning as, following a drop-off overnight, the pound briefly hit $1.2923, which is its lowest rate since January 22nd. It has since recovered to continue trading the range it has been in since 6pm yesterday. This was after reports indicated that Prime Minister Theresa May had come to accept that the Irish backstop would have to be part of any agreement the UK signs with the EU, but that she would seek to implement a legally binding deadline after which it would come to an end. Whether this is enough to get the deal through Parliament by the end of March 29th remains to be seen. In fact, uncertainty seems to be as high as ever around Sterling, as indicated by a Reuters Poll of analysts taken this week for which the consensus believed that the pound would gain between 2 and 5 per cent if we agree on a divorce deal; but would slide between 5 and 10 percent if we experience a hard Brexit. In terms of likelihood, the changes of a softer Brexit would grow if reports in this morning’s Telegraph are to be believed, as it claims that UK cabinet ministers had held secret talks on plans to delay Brexit by eight weeks, pushing Britain’s exit date to May 24th.
?? USD - Late last night, President Trump’s State of the Union address proved fairly uneventful as he failed to deliver anything meaningful, whilst no mention of a national emergency helped to support the dollar. On the two main issues around which investors were keen to hear, the threat of another government shutdown goes on, while there was also no negative rhetoric on the issue of trade which should help provide a boost for risk sentiment. However, Trump did double down on his promises to solve the problem of illegal immigration (which he believes to be a national crisis) by putting up a border wall with Mexico. Despite this, the dollar settled near a two-week high versus its main currency pairs overnight. Looking ahead, the next point of interest will be today’s speech by Federal Reserve Chairman Jerome Powell, but it seems unlikely we will hear much variation from what was said during January’s FOMC meeting as Powell is learning to stick to the script more and more.
?? EUR - The Eurodollar continues to remain under pressure this morning following soft Germany factory order figures which fell by 1.6 per cent in December, making it a second straight monthly drop and the largest drop since June. This data added to the euro’s woes as EUR/USD hit new weekly lows as we continue to see a decline in Europe’s largest growth engine. This continuation of weak data is plaguing the thoughts of European policymakers who are currently struggling to find a good reason to alter guidance on interest rates. In the year that will see a new central bank president; by the time they are appointed – their hands could be well and truly tied. This is all the more significant as in recent history, the largest move up for the Euro have tended to be around changes in the outlook for monetary policy. That being said, the Euro has remained resilient in the face of all of this negative economic data, fighting to remain within a $1.13-1.15 range over the last three months.
GBP: Sterling remains range-bound, but with a negative skew as reports emerge this morning of a secret meeting to extend the Brexit deadline;
USD: State of the Union address fails to rock the boat as Trump avoids using threats of a national emergency, helping the dollar to strengthen;
EUR: German factory releases are the latest in a long line of poor economic data for both Germany and Europe as a whole.
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