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So long, brother

So long, brother

GBP

The Pound had a better day, surging to monthly highs of 1.2350 on the Dollar and 1.1170 on the Euro. The day’s politics started early with Jo Johnson, the PM’s brother, resigning from government and parliament, claiming to be “torn between family loyalty and the national interest.” Boris Johnson has no majority in the House of Commons, lost three critical votes and is close to being legally bound to avoid a “no-deal”. The market has reacted by pricing in diminishing chances of a hard-Brexit. There was no significant economic data and the calendar will remain scarce on Friday.

The House of Lords is still debating on various Brexit issues and aims to return them to House of Commons by Friday, enabling Royal Assent on Monday. Sterling investors will also be scrutinising headlines from judicial reviews and pleas against Boris Johnson’s prorogation ploy and general election arguments. Position adjustment will remain significant today and further choppy trading is likely.

USD

The US Dollar Index tumbled for the third session in a row as sentiment switched to risk-on mode. The trigger came from reports that US and Chinese trade officials are planning on a Halloween meeting. News that the US-China trade negotiations will kick off again in October reduced demand for traditional safe-haven assets, which was evident from a sharp rise in the US Treasury bond yields and helped ease the recent bearish pressure surrounding the greenback.

The ADP report came in to show that the US private-sector employment increased by 195K in August, well above economists’ expectations and marked the highest reading in five months. This was followed by upbeat ISM non-manufacturing PMI, which surpassed even the most optimistic estimates and jumped to 56.4 in August from 53.7 previous. The data forced investors to temper their expectations of aggressive policy easing by the Federal Reserve (Fed) at its upcoming meeting in September.

The headline Non-Farm Payrolls report out later today is expected to show that the US economy added 158K new jobs in August, while the unemployment rate is anticipated to hold steady at 3.7%. Adding to this, average hourly earnings are seen rising by 0.3% on a monthly basis and by 3.1% when compared to a year earlier. 

Later during the US trading session, a scheduled speech by the Fed Chair Jerome Powell will play a key role in influencing the USD price dynamics.

 

 

EUR

The Euro gained some support from reduced fears surrounding the European political climate with a dip in perceived risk of a ‘no-deal’ Brexit. German bond yields rose on expectations that the ECB would take a more measured stance in the September stimulus package, which also boosted the Euro to highs above 1.1070  against the Dollar. The Euro is stable this morning despite a monthly decline in German industrial production. Later this morning European GDP figures are forecast to remain unchanged on last month. 

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