How do you solve a problem like borders?
UK Brexit Secretary Dominic Raab stated that the UK could see no alternative to the proposed Irish border, but that the government was open to fresh suggestions. UK 10-year government bond yields increased to 3-month highs, supporting the Pound, although higher US and German bond yields offset the move.
Sterling hit was constrained below 1.3170 against the Dollar before dropping back to the 1.3130 region, but the Pound was up on the day against the Euro when it regained the 1.1260 mark. Michel Barnier’s assertion that negotiations were close to conclusion had limited impact, but added that a fully operational Irish backstop was required to protect single market integrity and that the EU was ready to offer improved terms.
There is an element of caution ahead of this morning’s UK inflation data release and tomorrow’s informal Salzburg Summit.
German bond yields moved higher and Italian bonds declined, meaning there was a tough start to Tuesday’s session for the Euro. This was reversed slightly later on, with hopes of a successful Brexit offering some support.
The main focus yesterday was on US tariffs imposed on China, which actually pushed the Euro-Dollar rate to 1.1720, however, when news filtered through of the inevitable retaliation from China, the Euro fell back to 1.1680. This week, the biggest influence on the rate has come from factors affecting the Sterling and the Dollar, rather than factors affecting the Euro itself.
Draghi is set to deliver a speech again today at 14.00, in which he is expected to talk about the future of economic policy. We can expect some volatility around this event, as his speech yesterday did not cover any market moving topics.
The US National Association of Home Builders (NAHB) housing data was unchanged at 67 for November, marginally beating consensus forecasts. The Dollar index gained on the day and the Euro slipped from the 1.1700 level as the Dollar pushed it to 1.1660 by 4 P.M.
US Treasury yields moved higher overnight which, with US equities opening with significant gains, triggered a fresh Dollar advance. By the early hours, advances by commodities currencies meant that the Dollar edged lower again. In the absence of any new trade war rhetoric, the market focus will be on Europe today.
Data to watch:
09:00 GBP MPC Member Haldane Speech
09:30 GBP Retail Price Index (MoM) (Aug)
09:30 GBP Retail Price Index (YoY) (Aug)
09:30 GBP Consumer Price Index (MoM) (Aug)
09:30 GBP Consumer Price Index (YoY) (Aug)
09:30 GBP Core Consumer Price Index (YoY) (Aug)
13:30 USD Building Permits (MoM) (Aug)
13:30 USD Housing Starts (MoM) (Aug)
14:00 EUR ECB President Draghi’s Speech