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UK-US trade deal hopes

UK-US trade deal hopes

GBP

Boris Johnson’s comments that a deal including the Irish border may not be achievable by October 31st added added to a less supportive political environment. The EU had also strongly criticised the UK Irish border proposals. The Pound surrendered some of Thursday’s gains with the Euro recovering to the 1.1325 area and the Dollar moving to near 1.2470. 

Futures market data recorded a decline in bets against the Pound but the potential remains for substantial short covering if sentiment strengthens. Sterling rose on media reports that the UK and US have agreed to reach a trade deal by July 2020 but still opened below 1.2500 this morning and the Euro was little changed. 

The Supreme Court ruling on whether the suspension of parliament was unlawful may trigger fresh volatility and a “cautiously optimistic” Boris Johnson will meet German chancellor Merkel, French President Macron and European Council President Tusk at a climate summit in New York today.

USD

The Federal Reserve (Fed) announced that repo operations would continue until at least October 10th in order to alleviate pressure in money markets, although there was still underlying dollar demand. President Trump stated on Friday that US-China talks had made a lot of progress, but reiterated that he does not need a deal before the 2020 election and that he is not interested in a partial deal. There was also uncertainty over agricultural talks. There was a more cautious tone surrounding risk appetite and US yields moved lower while Wall Street indices also lost ground.

Boston Fed President Rosengren stated that building permits and jobless claims are not signalling a recession while rate cuts at the top of business cycles encourage increased risk-taking. He also stated that the economy can withstand trade risks and that monetary policy is already accommodative. Vice-Chair Clarida stated that the economy is in a good place, but there are some risks and the committee will act to sustain the expansion. St Louis head Bullard justified his call for a 0.50% cut on expectations of a slowdown while he considered manufacturing was in recession and expected a further cut.

 

 

EUR

The Euro has dropped this morning against the Dollar to below 1.0970 as both German Flash Services and Manufacturing PMI data came in below expectations. The Manufacturing PMI hit a low of 41.4 points, significantly below 43.5 points in August and well below expectations of an increase. The services sector, which has been carrying the economy came in at 51.6 points, barely above the 50 point threshold that separates expansion from contraction.

Overall confidence in the outlook remains fragile with the Euro finding support just above 1.1000 at the close on Friday, unable to make any headway even after the Federal Reserve advocated caution over the remainder of 2019 for the Dollar. 

Later in the session, the single currency is expected to remain under the microscope, as President Draghi testifies before the Committee and Monetary Affairs of the European Parliament.

 

 

Data to watch

08.30 EUR – German Flash Manufacturing PMI

08.30 EUR – German Flash Services PMI

14.00 EUR – ECB President Draghi Speaks

14.45 USD – Flash Manufacturing PMI

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