Boris will be meeting Irish Prime Minister Leo Varadkar in a last-ditch attempt to salvage his Brexit deal, following a tough day yesterday for the pound that saw Boris’ deal on the verge of collapse.
A widely reported difficult conversation between German Chancellor Angela Merkel and Boris, prompted a fall in sterling exchange rates following indications Merkel would not agree to his plans on the Irish border. The initial optimism a deal would be reached began to fade and was made worse by further reports the UK would be hostile to any countries that pushed the UK into an extension, that they might be ‘at the back of the queue’ for any future relations.
Such developments appear to have made a deal at next week’s EU Summit less likely and the outcomes currently point more to a no-deal or extension, but this can change. Any extension may ultimately lead to a general election, the current odds for a November election are 1 to 6, and for December 5 to 6, on the website oddschecker.com.
It might be argued that no-deal prospects have increased from yesterday, as the gulf between the UK and the EU widens. The Benn Act requires the UK Prime Minister to ask for an extension by the 19th October, this is another factor ahead which might shape outcomes on sterling exchange rates. Suggested extension dates reported in the Times today suggest anywhere between March 2020 and Summer 2020.
The Times also suggest many Conservative MP’s have made clear they will not stand on a ‘no-deal’ Brexit platform at any general election, including heavy hitters like Geoffrey Cox and Matt Hancock, paving the way for more difficult questions on Brexit ahead.
Sterling proved its sensitivity to the fallout surrounding these political matters once again yesterday and with matters far from solved, sterling may encounter further unease ahead.
In other news at 09.30 this morning, the Financial Policy Committee of the Bank of England will deliver their latest Minutes. This may provide insight into the UK central bank’s plans on monetary policy ahead, which may influence sterling rates. Thursday sees the latest Manufacturing and Industrial Production data released alongside GDP (Gross Domestic Product) data for the UK too.
The euro has been losing ground in recent months following the economic stagnation which led the ECB (European Central Bank) to cut interest rates and revisit a fresh QE (quantitative easing) program. This was not universally popular in Europe and saw the resignation of German ECB Member Lautenschlager at the end of September, signalling the political challenges of such policies. With the Eurozone economy remaining sensitive to global trade concerns, the ECB actions and uncertainty over the future direction of policy are reasons for Euro exchange rate fluctuations.
Germany is predicted to enter a technical recession this Autumn highlighting the weakness in the Eurozone as a whole, since if Germany the largest economy is struggling it does not bode well for the other members. German industrial orders data showed a decline this week, prompting the euro to lose some ground. This Friday is the latest German Inflation data which may provide further insight into performance of the German economy and might influence euro rates ahead.
Political concerns are also high in the Eurozone with Spanish elections early November, the fourth visit for Spaniards to the polling booth in as many years. With many fragments along the political spectrum from the right-wing ‘Vox’ to the newly formed left-wing Mas Pais (More Country), the currency market will have plenty to digest in deciding the political outlook of the Eurozone’s fourth largest economy. The Socialist workers party has been leading the polls which are currently pointing to a coalition government of some description, once again.
Tonight, is the latest FOMC (Federal Open Market Committee) Minutes, from the US central bank. The ‘Fed’ has been in the spotlight for their future interest rate plans, following a cut in September. Considering the US were predicted to raise interest rates at the beginning of the year, it has been quite a change in the outlook. This reflects the perceived increased risks in the global economy, including Brexit, the Trade Wars and a slowing global economy. The commentary from the Fed this evening, might provide further insight into their plans with many commentators predicting at least one more cut this year.
Fed Chairman Jerome ‘Jay’ Powell spoke yesterday afternoon and indicated he felt there was no reason why the ‘monetary expansion could not continue’, with Powell indicating room for further cuts and even QE (Quantitative Easing) ahead. The dollar was firmer off these comments since, typically QE and cutting rates would weaken the currency concerned, Powell and the Fed’s apparent determination to continue breathing new life into the current economic cycle was taken positively by markets. Powell also stressed this was ‘Not QE’ in its previous form but more designed to soothe fears over short-term lending in the banking system.
Compelling the general unease in markets of late, was the ongoing concerns relating to the Trade Wars, with little hope regarding the new talks scheduled for tomorrow between China and the US. This was following news on Monday that the US has restricted exports to certain Chinese companies of US made products in the security and defence sectors. Such a backdrop is not indicative of a solid base for trade talks, and even the NBA (National Basketball Association) has become embroiled in the friction, following an NBA tweet supporting the protestors in Hong Kong, only provoking further irk from China.
Thursday is the latest US Inflation data which might well hold some information which would relate to the prospect of the US raising or lowering interest rates and could be an event to monitor on US dollar exchange rates.
Canada heads to the polls on Monday 21st October to elect a new Prime Minister in what is a close race between the current Liberal leader Justin Trudeau and the Conservative Andrew Scheer. Key topics in the election have been the environment and the economy, the election is essentially being billed as a referendum on Justin Trudeau, the current PM.
Last night a television debate saw the leaders go head to head, with Jagmeet Singh, of the NDP (New Democratic Party) being suggested as the ‘winner’, as participants targeted Trudeau. Elections by nature are politically uncertain events and can lead to weakness on the currency concerned in the run up to, and volatility on the result.
The Canadian dollar has weakened in recent weeks after it became clear the Bank of Canada might need to consider cutting interest rates ahead, following uncertainty ahead for the global economy. The price of Oil, a major export for the Canadian economy has also faltered in recent weeks which has caused the Loonie dollar to lose ground.
Upcoming economic news for the Canadian dollar will be this Friday’s Unemployment rate data released in the afternoon at 13.30 UK time, offering some potential for movement on Canadian dollar exchange rates. Canadian unemployment hit a record low in June of this year at 5.4% but at last measure had slipped to 5.7%. Friday’s news may carry some extra significance with its proximity to the election and may be one to watch if you have interest in the Canadian dollar.
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