On Monday, the Northern Ireland DUP indicated that they would not back a Customs Union amendment to the latest Brexit agreement which provided net Sterling support. Sterling briefly broke to fresh 5-month highs above 1.3000 against the Dollar below 1.1625 against the Euro as underlying demand remained firm.
There was selling interest above 1.3000 against the Dollar and House of Commons Speaker Bercow ruled that the government could not hold a vote on the Brexit. The UK currency drifted towards 1.2950 amid on-going House of Commons wrangling with the Euro settling close to 1.1620. The government introduced the Withdrawal Act Bill and is aiming to secure House of Commons approval within three days. A second-reading vote is scheduled for later today and approval would boost the Pound while defeat would represent a fresh setback. There are also major procedural barriers to rapid approval and any further setbacks would make it impossible to secure an EU exit on October 31st.
The Dollar continued to lose ground against commodity currencies and the soft US tone helped push the Euro to 9-week highs near 1.1180.
There were no significant US data releases and the Federal Reserve (Fed) entered the blackout period with no comments ahead of next week’s policy meeting. Markets priced in around a 90% chance of a further Fed rate cut. Markets were also continuing to monitor US political developments with President Trump stating that impeachment was inevitable as domestic tensions continued to increase.
In its monthly report, the German Bundesbank stated that the economy may have contracted for the third quarter and the downturn in exports is now threatening to affect the domestic economy as well, especially with early indicators providing few signs of a sustainable increase in exports. Despite the cautious Bundesbank tone, German yields moved higher on the day to fresh 4-month highs which underpinned the Euro as yield spreads also moved slightly in the single currency’s favour. The Euro also gained net support from Brexit hopes with increased Euro demand in options markets
The latest Euro-zone PMI data will be an important factor with its release on Thursday and another very weak set of readings would most definitely undermine sentiment. Political developments will also be monitored closely and as of writing the Euro finds itself at the 1.1145 against the Dollar.
Posted in Daily Market News on Oct 22 2019