Khan breaks rank
Amid renewed Brexit optimism, Sterling managed a peak of 1.3143 against the Dollar, but fell away after reports indicating indicating that Labour is set to vote against the “Chequers’ Brexit deal”. Theresa May will need considerable Conservative support to fend off opposition to her vision and also to remain in Number 10 beyond the short-term. Also, Dollar demand rose due to trade tensions and GBP-USD ended the week by banking 1.4% gains at 1.3068. The Pound gained 0.55% against the Euro in the last week, peaking at 1.1252 just before markets opened this morning.
London mayor Sadiq Khan called for a second Brexit referendum over the weekend, risking the wrath of the Labour Party leadership, stating that Brexit will result in civil unrest. Brexit talks continue this week and an EU summit in Salzburg this Thursday is expected to schedule an extraordinary meeting in November to sign off on a deal on future relations. Also, the nation’s cutlers will expect a rise in sharpening work, with the Conservative Party conference opening on September 20th and concluding on October 3rd.
Later this week, the UK Consumer prices are released on Wednesday and forecasts predict inflation will have dipped 0.1% in August, in line with the Bank of England’s estimate. Thursday sees the UK Retail sales release, and on Friday, UK Government Spending figures – also known as the budget deficit.
Caution looms over the USD this morning, as all eyes remain upon the US-China trade front, where fresh US tariffs (and Chinese retaliation) could be announced any time later in the week.
The US Dollar Index, which measures the buck against a basket of competitor currencies, has fallen after the recent test of tops in the 95.00 level, leaving behind the poor results from inflation figures for the month of August and instead refocusing on the trade and the Federal Reserve’s tightening.
Markets eagerly await US President Trump’s announcement of the imposition of the new tariffs on the additional $200 billion worth of Chinese imports, to which China responded that they would pull out of the trade talks under the renewed tariff threat.
The escalating trade talks will continue to keep a buoyant tone intact around the safe-haven US dollar, which is likely to remain the exclusive driver for the major in the day ahead.
Friday was a strong day for the Dollar, meaning the Euro-Dollar exchange rate was somewhat pegged back due to better than expected economic data. No real economic news came out over the weekend, with the Euro-Sterling rate holding just above the 1.1200 mark. Erdogan criticised his own central bank for raising rates, which explained the slight tailing off.
Today sees the release of lots of Euro inflation numbers, but no real shocks are predicted and many will have been priced into the market already. We are looking at Annualised Consumer Inflation, Annualised Core CPI and month-on-month CPI but as mentioned, anything other than consensus would represent a shock.
Probably the most closely watched, and therefore with the highest potential for volatility, will be the speeches from European Central Bank board members Coeure, Praet and Mersch at 10:00, 12:15 and 14:00 respectively.
Data to watch:
09:00 EUR Consumer Price Index – Core (MoM) (Aug)
09:00 EUR Consumer Price Index (YoY) (Aug)
09:00 EUR Consumer Price Index (MoM) (Aug)
09:00 EUR Consumer Price Index – Core (YoY) (Aug)