Morning Report: 09 October 2018

October 9, 2018


GBP. Sterling lost a fifth of a percentage point as markets got fooled by the ever-changing Brexit calendar. It was released yesterday that the European Commission will not formally adopt a draft text on the future of the UK and EU’s relationship post Brexit on Wednesday, which was previously expected. Further to the stalling Brexit developments, it was released from 10 Downing Street that Dominic Raab will not be visiting Brussels this week after all, and there will not be an EU Council meeting next week after all but one sometime in Autumn instead. However, there remains a chance that a new framework may be released from the Government regarding the Irish Border this week. Today, leader of the Democratic Unionist party, Arlene Foster, will meet with Michel Barnier and Olly Robbins in Brussels. Arlene Foster remains a key figure in Brexit negotiations despite her lack of coverage as she leads the small Northern Irish party that holds Theresa May’s parliamentary majority together.

EUR. The euro made a false start to the week yesterday as Italy remains on a collision course with the European Union about their new budget, which had the single currency tank against most G10 currencies. German Industrial Production figures weren’t helpful either, with the August reading unexpectedly declining by 0.4%, whilst the July reading was downgraded as well. This is another reading that confirms the view that Eurozone economic data remains soft, which is for example echoed in leading macroeconomic surprise indices as well. This implies the growth difference between the Eurozone and the US economy may continue to increase, which can keep EURUSD pinned at a lower level for the coming months.

USD. The United States enjoyed a bank holiday yesterday to remember the day Christopher Colombus first arrived at the Americas, which the greenback celebrated by leisurely nesting itself in the middle of the G10 currency pack. The appointment of Judge Kavanagh dominated the news headlines, which was unavoidably claimed as a victory by President Trump. The impact of this on the midterm elections is unclear at this moment as he alienated critics of Kavanagh from his campaign by mocking the women who accused him of sexual assault. However, some reason support of evangelicals and social conservatives for Trump has increased now he managed to put the strongly conservative Kavanagh in the Supreme Court. The currency consequences are then even harder to discern, as the impact of Trump losing the majority in the Senate doesn’t put USD in a clear direction. NFIB Small Business Index is due today at 11:00 BST.

CAD. A softening crude price from recent highs has seen the loonie post losses against a broadly strengthening dollar over the last week or so. Positivity from the recent USMCA deal has almost been wiped off from the loonies price as USDCAD continues a 5-day rally this morning. However, with trade uncertainty cleared, the Bank of Canada has relatively open water to navigate – this is reflected in the money markets 89% pricing of a rate hike on the 24th of this month.

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