The pound has fallen after the DUP announced this morning that they cannot support the deal as it stands on customs and consent issues. The pound had reached a fresh high of 1.1630 yesterday amidst high volatility as the markets waited for a deal. There is now no final legal text for EU leaders today.
With just 14 days to go until the 31st October Brexit deadline the pound still faces a crucial few days starting with today’s EU summit followed by an unconfirmed emergency sitting of parliament on Saturday.
What has been dubbed ‘Super Saturday’, this rare Saturday parliamentary sitting was expected to see a meaningful vote take place. The Benn Act could come into force whereby an extension to 31st January would be requested.
If this wasn’t enough to keep the markets guessing another fresh legal challenge will take place in the courts tomorrow to prevent a no deal Brexit. It has also emerged that MP’s may try to force a confirmatory referendum on any deal that is agreed. The decision on whether parliament will sit this Saturday is expected to be announced by Jacob Rees Mogg later today. This event would take place when the markets are shut and so there could be a material shift in exchange rates in the early hours of Monday morning when they reopen. Those looking to purchase currency may wish to consider planning around these developments.
UK retail sales numbers are released this morning but will almost certainly be overshadowed by the ongoing political developments on Brexit.
EU Consumer Price Index inflation data for September released yesterday arrived weaker than expected having fallen to its lowest level in almost three years. Inflation has now fallen to 0.8% for September down from 0.9% and raises further concern for the EU economy. The number is well below the 2% target from the European Central Bank and the weaker data is likely to put further pressure on the central bank to do more to boost growth and raise inflation to try and fend off a recession. The weaker data follows poor industrial production numbers earlier in the week.
Data is light today with just construction data this morning. The EU summit will take centre stage. Whilst the pound is widely expected to take a major hit in the event of a no deal Brexit, the euro too is expected to suffer in that event.
The pound to US dollar exchange rate rallied to a high of 1.2853 yesterday on the back of Brexit developments helping lift the pound higher. The US meanwhile recorded weak retail sales numbers, taking levels to the lowest in seven months. Retail sales fell by -0.3% which was down from 0.3% the month prior. The data will be keenly eyed by the US Federal Reserve having just cut interest rates in September. Any more weak data releases could persuade the US Fed to cut rates at the next meeting.
This afternoon sees a host of US economic releases including jobless claims industrial production numbers and the Philadelphia Fed manufacturing survey. A number of Fed policy makers will also be speaking who may offer clues on future Fed monetary policy.
The pound to Australian dollar exchange rate has seen excellent gains this week with interbank rates for GBP/AUD hitting a high of 1.9093 yesterday as hopes for a Brexit deal had been pushing sterling higher. The Australian dollar meanwhile is still coming under pressure over concerns as to the progress in the US China trade negotiations. There is hope that a Phase 1 deal can be reached but it will take more time for a more comprehensive deal. Clete Willems a former adviser to President Donald Trump has stated “the more tariffs you put into place, eventually you’re going to get to the ones that hurt the US more than China and we’re getting there now.” Until an agreement is signed the Australian dollar is likely to remain under further pressure.
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