Weaker Dollar helps, but Sterling still bearish
Friday saw political tensions simmering, dominating market sentiment, but never managed to boil over. Sterling gained some relief from a lack of further ministerial resignations; Michael Gove remained in office but declined the role of Brexit Secretary. The anticipated no-confidence vote in Theresa May failed to materialise, although reports suggested the 48 vote threshold was close to being hit. Further meetings were slated for the weekend as MPs hoping to derail the withdrawal deal attempted to strengthen their position.
The Pound recovered slightly against the Dollar with a close just above 1.2800, although the US Dollar provided most of the impetus and the Euro pushed back to the 1.1235 area. Michel Barnier has stated that the transitional period could be extended until 31st December 2022, although the UK political situation remains the main focus with several members of the Cabinet looking to improve the draft agreement and provide further details of the future arrangement before the November 25th summit.
Sterling opens above 1.2800 against the Dollar and 1.1260 against the Euro as political tensions remain extremely high. Theresa May speaks before the CBI annual conference this morning and John Allen CBI President has pledged support for May’s Brexit deal.
Federal Reserve (Fed) Vice Chair Richard Clarida stated that interest rates were not being increased too quickly. There was a slight shift in emphasis as he stated that the Fed is now close to the point of being neutral and that any further increases would need to be even more data-dependent. He also commented that the Fed needs to factor in the global growth outlook given the US impact.
Dallas head Kaplan also stated that global growth will be a bit of a headwind and may spill over into the US while Philadelphia Fed President Harker stated that he was not convinced that a December hike was prudent given the increased uncertainty. There was also an editorial in the Wall Street Journal that the Fed should rethink on a December rate hike given the need to weigh whether it should expand the gulf between the US and foreign monetary policy at a fragile moment. The slight shift in tone triggered some fresh uncertainties over Fed policy and the Dollar lost traction during the day.
Today we don’t see any major market-moving economic releases from across the pond.
The Euro seemed to take a break this weekend after a very turbulent end to last week. The Italian budget situation reaches a significant point this week with the European Commission expected to ask Italy to change the budget, a decision that is likely to be made on Tuesday. Italian PM Conte is strongly defending his government, saying it is not run “by a bunch of hotheads” which is leading analysts to expect some volatility in the bond markets.
European Central Bank (ECB) President Draghi hinted at a slowdown in growth which has cast doubts on the growth outlook for the Eurozone. He stressed that this was only temporary and will not affect business investment which caused the Euro to dip slightly versus the Dollar to the 1.1420 level.
Today sees the Eurogroup meeting, the EU financial stability review and construction output for the Eurozone. In terms of data, this week is not too busy but geopolitical events are yet again expected to dominate.
Data to Watch:
24h EUR Eurogroup meeting
03:30 JPY Bank of Japan Governor Kuroda Speech
09:00 EUR EU Financial Stability Review
15:45 USD FOMC Member Williams speech