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Optimism On Trade Agreement As Talks Set To Resume

Optimism On Trade Agreement As Talks Set To Resume

GBP

Despite a relatively positive response to Chancellor Sunak’s Job support scheme, Sterling failed to sustain rallies on Friday with sentiment undermined by further speculation that the Bank of England could adopt negative interest rates.

Coronavirus developments remained a negative influence with new cases continuing to increase with further speculation that there would be additional measures in London and across the North of England.

Late into Friday’s session, EU sources stated that it was time to commit to key elements of the UK/EU trade deal, dampening optimism that rhetoric had been more encouraging. The UK subsequently dipped again to test the 1.2700 area against the Dollar and 1.0907 against the Euro before pressing higher.

Over the weekend, Bank of England MPC member Tenreyro stated that the evidence of negative interest rates had been encouraging with a reduction in interest rates charged by borrowers while lenders had adapted well. Trade developments will be crucial this week with a key round of talks beginning on Tuesday. Sterling has edged higher this morning to just above the 1.2770 against the Dollar and 1.0980 against the Euro. 

 

USD

US durable goods orders increased 0.4% for August compared with consensus forecasts of 1.5%, although there was an upward revision to 11.7% for July. Underlying orders increased 0.4%, also below expectations, although non-defensive orders were firmer. There were fresh doubts over the underlying US recovery trend.

There was an easing of coronavirus restrictions in Florida with political developments inevitably having an important impact on overall market sentiment. The first Presidential debate will be held on Tuesday which may have an impact on the election race and markets remain uneasy over the threat of chaos after the November vote if there are disputed results. As expected, President Trump nominated Amy Coney Barrett to fill the vacant Supreme Court position, reinforcing political stresses.

 

EUR

Eurozone money supply growth slowed to 9.5% in the year to August from 10.1% previously and below consensus forecasts of 10.2% while private loans increased 3.0% over the year. The ECB remains committed to a very expansionary monetary policy over the medium term.

There was further unease over coronavirus developments with pressure for restrictions to be tightened in Madrid as new cases continued to increase. According to sources, Italy would raise its 2021 GDP growth forecast, but also raise the 2020 debt/GDP ratio to 160% with the aim of lowering in 2021. 

Over the weekend, ECB Council member Ignazio Visco stated that Euro strength is worrying because it generates downward pressure on prices at a time when inflation is already low. Bank President Lagarde is due to speak today with comments on rhetoric being watched closely. As of writing, the Euro currently trades around the 1.1625 against the Dollar. 

 

Data to watch

14:45 – EUR – President Lagarde Speaks 

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