Brexit, EU Summit and US Stimulus Talks


The pound finished the week strongly and managed to match the weekly high against the Dollar at just over 1.30 as sentiment towards the UK EU negotiations turned positive yet again. Against the Euro the Pound spent most of the week bouncing between 1.1015 and 1.0960, the price action fuelled by headlines about the negotiations. We finish the week no wiser on the outcome of the negotiations other than if the talks are still ongoing there is still a chance for a deal. Fisheries remain a major sticking point with rumours of French president Emmanuel Macron holding the key to getting the deal across the line as he stands firm on continuing the access into British waters.

This week brings the tenth round of Brexit talks on Thursday and Friday as well the Boris Johnsons self-imposed deadline for Brexit negotiations. This is now expected to be breached and for the talks to be extended to the end of October and potentially early November. To justify another extension a joint message of progress is likely to be released which should lead to GBP strength. Though negative headlines will continue to drag down the pound even if a deal is eventually reached. Data wise, Tuesday brings unemployment data out the UK which is expected to increase as the furlough scheme come to an end. The markets will be also paying close attention to the new lockdown restrictions for England being announced today.


The dollar ended the week the worst performing currency as the greenback lost ground on all major currency pairings. The main driver for this poor performance was the uncertainty of a stimulus package getting through the senate. With Donald Trump trying to call the whole thing off until after the election at the beginning of the week. Eventually Treasury Secretary Steve Mnuchin was reported to be preparing to present Nancy Pelosi with a $1.8TN stimulus offer. But on Saturday Nancy Pelosi rejected the most generous Trump administration plan to date as “one step forward, two steps back” while the Republicans who control the Senate dismissed it as too expensive and a political loser for conservatives.

The US starts of the week with a public holiday as its Columbus Day. The markets are currently settling into the view that Joe Biden will win the Presidential election with the current polls showing the biggest lead by any challenger since 1936. With the second Presidential TV debate being delayed these polls are not likely change in the next couple of weeks though it also important to remember that Trump was trailing at this point four years ago. On a data front the big releases for the Greenback comes on Tuesday with CPI and on Friday with retail sales and consumer sentiment. But the data is expected to be second fiddle to the stimulus talks.


The Euro has stayed well supported against the Dollar even though the ECB have made comments on the Euro being overvalued. Rising cases of Covid across the Eurozone has caused governments to step in with Paris shutting all in bars and restaurants and an emergency lockdown in Madrid. The only major data release to come out the Europe last week were retail sales for August which beat the expectation coming out at 3.7%. Though this could be short lived as new lockdown restrictions get introduced.

Apart from the Brexit talks the main focus will be in the EU summit on Thursday which could lead to fresh sanctions on Turkey and Russia. The ECB president Christine Lagarde has raised concerns over the potential for a double dip recession and the markets will be paying close attention to the data coming out over the next few week to see if this reflects Lagarde’s concerns. Though the only major data releases this week are the German ZEW figures so the markets will have to wait until next week’s PMI numbers to be released to have a proper understanding of the current economic climate.

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