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May to break Brexit deadlock

May to break Brexit deadlock

UK government borrowing data printed the lowest August reading for 10 years, continuing a trend of lower borrowing this calendar year. There was a solid increase in tax revenue while spending growth was subdued which helped underpin confidence in the growth outlook.

Reports during the US trading session suggested that Theresa May will offer the European Union EUR 20bn during a 2-year transition period, but only if there is UK access to the single market and some form of customs union. The overall rumours bolstered expectations that May would push the government towards a ‘softer’ Brexit which also tended to underpin Sterling sentiment.

Overall, GBPEUR rose to 1.1364, the strongest close for over two months while the Pound moved to highs near 1.3590 against the Dollar.

There will likely be choppy trading today as Theresa May will deliver her vision for Brexit in a speech in Florence. Speculation that a two-year “transitional deal” and “divorce payments” have buoyed Sterling. It is unlikely the PM will mention Boris.


In the US market yesterday, US initial jobless claims declined to 259,000 in the latest week from a revised 282,000 as conditions began to stabilise following hurricanes Harvey and Irma. Further, the Philadelphia Fed manufacturing index strengthened to 23.8 for September from 18.9 previously and was coupled with a firm reading for the six-month expectations index. Notably stronger readings for both price indices suggests an underlying increase in inflationary pressure, fueling the likelihood of a rate hike probability this year.

On the contrary, uncertainty in the US from the true impact of geographical disasters and the threat of North Korea has caused a lack of additional traction. President Trump in his first speech addressing the UN yesterday announced an executive order for additional US sanctions on North Korea. He confirmed that the Public Bank of China has ordered Chinese banks to cease business with the country, whilst efforts will also isolate North Korea’s shipping and trade networks

The dollar was therefore not able to further establish a headway against its peers following yesterday’s firm data and Wednesday’s more hawkish than expected Fed statement. The dollar saw loses as Cable returned to levels seen earlier in the week, closing yesterday at 1.3582 whilst against the Euro, a gradual rise in the rate closed the day out at 1.1971.


Euro-zone economic data yesterday was light with consumer confidence improving to -1.2 for September from -1.5 previously. Further as expected, there were no comments from President Draghi on monetary policy in his brief speech yesterday.

The Euro found support yesterday and rallied to the 1.1950 area against the Dollar whilst after initially weakening against the Pound to 1.1380, regained to close around 1.1356.

With expectations that the European Central Bank (ECB) would move towards policy tightening at October’s policy meeting, comments from ECB officials will be tracked with Draghi due to speak again later in the day with position adjustment also a significant factor.

Data To Watch

08:15am EUR ECB Cœuré Speech,
08:30am EUR Markit PMI Composite (Sep), Markit Services PMI (Sep), Markit Manufacturing PMI (Sep),
09:00am EUR ECB President Draghi’s Speech, EUR Markit Manufacturing PMI (Sep), Markit Services PMI (Sep), Markit PMI Composite (Sep),
10:30am EUR ECB President Draghi’s Speech,
11:00am USD FOMC Member Williams speech,
12:15pm EUR ECB Vice President Vitor Constancio speech,
02:15pm EUR ECB Vice President Vitor Constancio speech,
02:30pm USD Fed’s George Speech,
02:45pm USD Markit Manufacturing PMI (Sep), Markit Services PMI (Sep), Markit PMI Composite (Sep),
n/a GBP UK Prime Minister Theresa May speech,
06:00pm USD Baker Hughes US Oil Rig Count,
06:30pm USD FOMC Member Kaplan Speech

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