All eyes on Trump

GBP

The Pound had a roller coaster week as it reacted to every headline and rumour coming out of the Brexit negotiations, with the volatility reaching 1.4% for the week. Though given the volatility the pound still managed to finish the week 0.3% up against the euro and just over 1% against the dollar. The ninth and what was supposed to be the final round of negotiations came to an end last week with no material news on a deal and instead a tenth round of talks have been scheduled for the 15th and 16th of October. Logically the market believes that the more talks than the higher chance of a deal going through and thus the pound will continue to strengthen.

Brexit will continue to be the main the driver for the pound and we are expecting another choppy week as it continues to react to headlines. Many analysts still believe that that the downside risk to the pound is still much greater than the upside potential. On a data front the pound is in for a quiet week with the most notably data coming on Friday in the form of GDP month on month for August as well as a speech from the chief economist of the Bank of England Andrew Haldane.

USD

The biggest headline came in the early hours on Friday with the announcement of Donald Trump contracting coronavirus. This weakened the dollar slightly dropping by 40 pips against the Euro though the news effected the equity markets far more severely as investors sold equites and moved to safe havens and left the dollar as the worst performing currency last week. Little progress has been made on the fourth stimulus package but with new signs of weakness in the US economy the Whitehouse will apply more pressure to get it through congress. The major data release comes on Friday with Nonfarm Payrolls which came our softer than expected at 661K versus and consensus of 850K though this did little to move the market considering the other headlines.

With the President currently isolating extra attention will be put on Vice President Mike Pence and the VP Presidential debate against Kamla Harris on Wednesday. With Joe Biden continuing to lead the pools, Harris’ will need to stop Pence scoring to many points. The markets will continue to watch the progress of the stimulus bill and will likely lead to a weakening dollar. From the economic calendar, the highlight comes on Tuesday with a speech from FED Chair at a NABE conference followed by the release of the minutes from the September FOMC meeting.

EUR

The Euro found some strength against the Dollar last week finishing the week one percent higher than it started and maintaining above the 1.17 level. The Euro struggled for positive data last week with almost all data releases missing the predictions, most notably consumer price index for September at -0.3% continuing poor inflation data from the Eurozone. Christine Lagarde also looks to be following suit with the FED as she hinted at changing the ECB’s inflation target to allow it to exceed the 2% target, more confirmation on this will lead to a weaker Euro.

This morning France announced that it will be closing its bars as tighter coronavirus restrictions sweep across Euro as the governments are finding it difficult to control the second wave. Markets are expecting fresh stimulus form the ECB in December and with the release on Thursday of the minutes from September’s meeting there may be some insight into their view of a strengthening Euro. The data calendar is very light for the Euro this week but there will be a range of speeches from the ECB running from Tuesday through to Thursday.