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Negative Interest Rates A Possibility But Not Likely

Negative Interest Rates A Possibility But Not Likely

GBP

BoE Deputy Governor Dave Ramsden stated it was essential to keep the possibility of negative interest rates on the table, but reiterated there are no immediate plans to implement negative rates. He also pointed to structural issues in the UK financial sector which would tend to make negative rates less attractive. The comments overall dampened expectations to move rates into negative territory.

Cabinet Minister Michael Gove took an optimistic slant on the UK-EU joint Committee meeting, emphasising that the UK wanted to implement the Withdrawal Act in full and that controversial clauses in the Internal Market Bill were a safety net. Trade Minister Truss stated that US-UK trade talks were also making significant progress.

Sterling pushed sharply higher after Ramsden’s comments alongside a more optimistic view of a breakthrough in the trade negotiations. The UK currency peaked above the 1.2920 against the Dollar and 1.1075 against the Euro. Early in Asian trading, there were reports that the EU had agreed to start writing a joint legal text which would be an important step forward and the negotiations due to start today will be extended.

UK and US political developments, together with trends in risk appetite, will continue to be watched very closely whilst month end positioning could cause an increase in volatility over the next 36 hours with Sterling just above the 1.2835 against the Dollar and 1.10 against the Euro. 

 

USD

The Dallas Fed manufacturing index strengthened to 13.6 for September from 8.0 previously and above expectations of 9.5.

There was still significant unease over the extent of short dollar positions in the market and the threat of a short squeeze which limited US selling. 

Fiscal policy will remain a significant background focus with House Speaker Pelosi again meeting Treasury Secretary Mnuchin. Pelosi outlined a revised $2.2trn stimulus proposal, but there was no evidence of support from the Republican-controlled Senate which would be needed for support measures to be approved.

The US currency edged lower this morning with the Euro trading around 1.1665 and the pound at 1.2850.

 

EUR

The Euro edged higher ahead of Monday’s US open with the Dollar drifting lower as the robust tone in risk appetite continued to curb potential US currency demand.

ECB President Lagarde reiterated that the central bank would carefully assess all incoming information, including developments in the exchange rate, with regards to its implications for the medium-term inflation outlook. She also noted that the bank was ready to adjust all instruments as appropriate with markets still pricing in a small cut in interest rates over the next few months. There were, however, further reports of a rift within the ECB with the more hawkish members wanting to slow the pace of bond purchases and rhetoric will be watched closely.

As of writing, the Euro currently trades around the 1.1670 against the Dollar.  

 

Data to watch

15:00 – USD – CB Consumer Confidence

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