Border worries delay Brexit deal
UK Public Sector Net Borrowing recorded a budget surplus of £2.0bn in July, and borrowing in the first four months of the tax year declined to £12.8bn, down from last year’s £21.3bn. CBI industrial orders index declined to 7 in August from 11 in July, but exports remained at historically high levels. Sterling sentiment improved modestly and the Pound, seen as undervalued from a long-term view, managed to take advantage of Dollar vulnerability to push back up to the 1.2900 mark.
Reports emerged that EU diplomats are pessimistic on the chances of reaching a Brexit deal as the the Irish border issue remains unresolved, and consequently there may be an emergency EU Summit in November and December. Michel Barnier, EU Chief Brexit Negotiator, stated that, as negotiations are entering the final stage, they will be continuous from now on. He added that the EU wanted a Brexit deal but that preparations had to be made for a no-deal scenario. New UK Brexit Secretary Raab stated that good progress had been made, but that there were still significant issues to overcome.
Sterling overall held a firm tone and the Euro was prevented from reaching 1.1110 before falling back to the 1.1155 area.
The Single market currency hit the 1.1570 mark in the evening session yesterday after a reasonably strong day for the Euro. The Dollar weakened on the news of Trump’s lawyers plea deal with the Euro and Pound reacting positively. In truth, Tuesday was a very quiet day for the Euro, with no significant data being announced and no major volatility – just a slow and steady rise towards 1.1600 vs. the Dollar.
The only piece of economic data due today is the German 10 year bond auction numbers, so another quiet day for the Euro is expected. Having said this, news from across the pond may have some effect on the markets, but that will not been known until this afternoon.
The US Dollar has continued to slide lower relative to a basket of its major competitor currencies for the third consecutive day in a row. The Turkish Lira is the only major currency in the red behind the USD after the White House signaled that there will be no concession for Erdogan.
The latest move came after the US President complained about the Federal Reserve’s (Fed) current monetary policy of raising interest rates. Fed Chair Powell had no plans to ever let President Trump’s comments impact central bank policies, although there was no realistic possibility that the Fed could say anything else.
The US Philadelphia Fed non-manufacturing index declined slightly to 41.7 for August, from 44.3 previously, and new orders growth slowed, although there was further strong upward pressure on wages and benefits. Dallas Fed President Kaplan stated that interest rates should continue to be raised gradually to a neutral level, explaining his considerations that 3-4 further hikes would be needed to reach that level and would then be inclined to step back and assess the outlook.
In a market which is light on data and thin on liquidity, participants are left pondering whether the independence of the Fed is at risk as we wait to hear the Fed meeting minutes later today.