Brexit’s Final Showdown

GBP

Last week the pound fell 1.8% against the dollar but gained 0.5% against the euro. The reason for the fall against the dollar was down to dollar strength compared to sterling weakness. The pound gained a boost on Thursday as Bank of England Governor Andrew Bailey commented on the use of negative interest rates as he ruled them out in the near future. The new wage-subsidy plan announced by Rishi Sunak last Wednesday also contributed to keeping the pound supported but Brexit continues to be the main driver for the pound.

The pound has had a strong start to the week with an increase of 1% against the dollar and 0.7% against the euro. This is off the back of positive noises coming from both sides of the UK-EU negotiations and that a deal is closer than many people think. With a press conference due for Thursday evening we are likely to see a trigger point and the pound move significantly on the outcome. On a data front the big releases for the pound comes on Wednesday with GDP quarter on quarter for Q2 predicted at -20.4% which is the same as its previous reading. The markets will be watching closely to see if the UK’s economy is continuing to improve or if with the rising case numbers of coronavirus, a second slowdown could be in store.

USD

Last week the dollar joined the Yen and the strongest performing G10 currencies though the markets are viewing the dollar rise as nothing more than a correction from its recent losing streak. The dollar index broke through a key resistance level of 93.66 confirming 91.74 as the current bottom of the market. Jerome Powell testified before the congressional panel where he told them that the American economy has shown a “marked improvement” since COVID sparked a recession but that the path ahead remains “highly uncertain”.

The highlight for the dollar this week will be the first presidential TV debate taking place in Cleveland on Tuesday evening. As it stands Biden is currently ahead by 7% in the polls but with Trump being known for his strong performance in these kinds of events the polls could quickly be reverse. Analysts currently see Trump as strong for equites and weak for the dollar. This could be indicated in in early hours on Wednesday as the Asian markets digest the fallout from the debate. The economic calendar will show an insight into the US jobs market with ADP employment on Wednesday and Nonfarm Payrolls on Friday.

EUR

The Euro closed out its worst week since April as investor risk appetite faltered due to rising coronavirus cases in Europe, signs that the economic recovery have topped out and lack of confidence in the euro after the ECB complained about it being overpriced. The EUR Effective Exchange rate is currently trading at the lower end of its two-month range at 101.30. Markets will be watching closely to see if the euro drops lower with several risk on events this week.

The Euro will be in the news straight away this week with a speech from Christine Lagarde, she will also be making another on Wednesday. With the ninth round of UK-EU negotiations starting this week and with the post-negotiations briefing expected on Thursday evening the euro could be in for another choppy week. On a data front, Tuesday will see the release of Harmonized Index of Consumer Prices for September out of Germany. Followed by Retail sales on Wednesday also from Germany and CPI for the Eurozone as a whole.