As the tension surrounding the UK’s departure from the European Union continues to grow and with only 29 days left until the current exit date, sterling currency markets remain volatile particularly against the euro and US dollar.

Tomorrow, UK Prime Minister Boris Johnson will head to Brussels to negotiate a revised exit plan and according to the Financial Times. By the weekend, it could be clear whether the EU are willing to agree a solution to resolve the controversial Irish border Issue, that has been a sticking point for much of the last 18 months.

The PM has reportedly indicated to Brussels that the new proposal will form the basis to the deal and will ensure that physical infrastructure to the border can be avoided, however it would still also rely on Ireland and the EU accepting “alternative arrangements” surrounding customs, which have previously been rejected.

UK GDP figures show no improvement

UK GDP figures show no improvement

Fears of an economic recession in the UK resurfaced on Monday, as the latest quarterly GDP figure release saw no improvement from the previous -0.2%, which would mean that a further contraction in Q3, would officially confirm such concerns.

Despite this, The Office of National Statistics (ONS) did cite a cause for optimism, as the revised figures suggested that the economy grew slightly faster than expected at the beginning of the year, which may have contributed to a slight uplift for the GBP.

Poor German manufacturing data puts pressure on the single currency

Eurozone Consumer Price data was released yesterday, which saw drop of 0.1% and put the figure to the lowest it has been since 2016. The drop in inflation, moved the figure further away from the European Central Bank’s (ECB) target of just under 2.0%. A number of reports have suggested this development could underline the case for further monetary stimulus, which has been largely backed by current ECB president Mario Draghi, who is set to be replaced at the end of the month by the former head of the International Monetary Fund (IMF), Christine Lagarde.

According to analysts at ING, the overall picture and sustained weakness of core inflation for the bloc could be a cause for concern for the ECB and could fuel concerns surrounding an economic recession.

As political uncertainty surrounding Brexit continues to put pressure on European financial markets, growing economic concerns surrounding the Eurozone’s largest economy is maybe contributing to the pressure on the single currency. 

Reuters announced yesterday that a contraction in German manufacturing had deepened further, as a survey showed that the sector had recorded its worst performing data since the global financial crisis more than a decade ago. The report published by IHS Markit, suggested that the bleak manufacturing landscape is starting to take its toll on the economy and the country’s export-reliant manufacturers are feeling the strains from global trade tensions between the United States and China, in addition the UK’s planned, but delayed exit from the EU.

Brexit Deal - Close, yet so Far

Could the US impose further tariffs on EU products?

This week Reuters reported that the WTO could give the United States authorization to impose further tariffs on around $7.5bn worth of EU goods, after finding that European aircraft manufacture Airbus and US competitor Boeing, received billions of dollars in illegal subsidies.

The grant will reportedly allow the United States to impose further duties on European products with the WTO’s approval, which could escalate trade tensions between the two economies and in turn put pressure on financial markets.  

 

The World trade Organisation (WTO) have slashed their forecast for global trade this year with the US-China trade dispute and ongoing Brexit uncertainty largely behind the decision. The organisation had indicated that trade volumes would rise by just 1.2% this year, far below the April forecast of 2.6% and suggested that the growth forecast for 2020 was already down 0.3%.

This would be the 3rd consecutive year that the WTO have reduced their expectations for global trade growth and according to Bloomberg, the change in sentiment broadly reflects similarly bleak views resonating from global central banks and International Monetary Fund (IMF).

The release of US non-farm payroll data is often keenly regarded by investors and the outcome of which can often affect sentiment in the USD. On Friday, the latest figure is set to be released, with current expectations indicating job creation for last month at 140k.

Australian Dollar weakens as the RBA cuts interest rates

Sentiment in the Australian dollar weakened against most major currencies during yesterday’s trading, as a dovish move from the Reserve Bank of Australia (RBA) saw a cut to current interest levels to record lows of 0.75%. This was in fact the 3rd cut to interest rates this year, which has been in an effort to stimulate economic growth and boost inflation to the 2-3% target set by the central bank and outlined by RBA Governor Philip Lowe earlier in the year.

At the Reserve Bank dinner following the latest cut, Lowe stated that central banks globally were being forced to respond to slowing growth and trade tensions, whilst suggesting that further interest rates cuts were “inevitable” and called on the government and businesses to help.  

Given the general rise in the country’s population, which has stretched infrastructure across the nation’s largest cities, the RBA has reiterated its focus to reduce unemployment to relieve wage pressures, but with an increase of 0.5% in unemployment since the start of the year to 5.3% in August and with annual inflation at 1.6%, analysts expect interest rates could be cut by a further 0.25% by February 2020.

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