Sterling drops as deal “essentially impossible”

9th October 2019 Market Update

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🇬🇧 GBP –  Yesterday morning, a source in Downing Street released a summary of phone call between Merkel and Johnson. In the transcript, Merkel had stated that a deal based on the UK’s proposals was “overwhelmingly unlikely” to succeed. Politicians on both sides of the debate appear frustrated, with Donald Tusk tweeting “what’s at stake is not winning some stupid blame game”. The most likely outcome now appears to be an extension to Brexit once again. The result of this is that sterling has dropped to one-month lows against both the euro and US dollar. This is because the political uncertainty is expected to continue, and the chances of a general election have increased in the short term.
With regards to data, there was no data of note yesterday from the UK, and no data of note is being released today. Brexit remains at the forefront.

🇪🇺 EUR – German industrial production figures exceeded expectations yesterday at 0.3%, however the French trade balance and Italian retail sales both failed to reach market expectations. This had a minimal impact on the euro. Brexit continues to weigh on the EU, with European politicians still maintaining the position that they want to avoid no-deal Brexit. Despite this, the EU’s supposed insistence that Northern Ireland remains in the customs union to avoid a hard border with Ireland makes a deal particularly unpalatable with the British government. Today Eurogroup meetings are taking place, although this is unlikely to have an impact on the euro.

🇺🇸 USD –  Core PPI and PPI were released from the US yesterday, and both failed to reach the market’s expectations. Both the readings came in at -0.3%, adding fuel to the argument that we are currently experiencing a global slowdown, as prices appear to be falling for goods produced in America. This afternoon crude oil inventories are being released from the US, and Fed Chair Powell is speaking at an event hosted by the Federal Reserve Bank of Kansas City. Any forward guidance provided by Powell will likely impact the dollar this afternoon. This evening the minutes for the last FOMC meeting are being released, providing a more detailed record of the Federal Reserve’s most recent meeting.

 

Summary:

GBP: Sterling drops as the UK’s proposals are “overwhelmingly unlikely” to float with the EU
EUR: Europe maintains its stance that it wants to avoid no-deal Brexit
USD: Concerns surround the US as PPI drops


 

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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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