In the turn of the last month in the run up to Brexit, tensions surrounding all aspects of the deal negotiation have peaked with just 30 days left until the deadline. With further talks to dismiss Boris Johnson as PM, efforts are now being made tactfully to wait for the opportune moment to call for a vote of no confidence in the hope that it gets passed.
Multiple factors tie in to the reasons as to why these parties are pushing for his eviction but are predominantly due to the growing idea that they ultimately believe Boris’ intents are to leave the EU without a deal. With concerns over the damaging implications that a hard-line Brexit may cause, parties are collectively working together to oust Boris. This comes after EU Brexit negotiator Michel Barnier disclosed to the British government that Boris’s very “polarised” nature has pushed key EU leaders away with his take-it-or leave-it stance.
With the hope that a new and more agreeable PM, whoever that may be, may encourage the EU to reconsider a deal, it is to be expected that the vote of no confidence may occur in this week or the next. This is likely to trigger volatility for sterling rates and so investors holding pounds may wish to reconsider their options surrounding this time period.
The Telegraph today revealed that Boris Johnson, in a potential last bid attempt to secure a deal with the EU, will be unveiling his detailed Brexit plan to Brussels to provide an alternative to the Irish backstop – a significant factor that assisted in the extension of Brexit earlier this year. From this proposal comes the requirement of a customs border with new technology for a smooth movement of goods. With these new calls to the EU coming soon, all eyes will be on the PM to see how these new developments plan out.
The economic data out last week, including the Markit Manufacturing PMI data painted a bleak picture for the Eurozone with figures tumbling to 41.4. As a figure of less than 50 being a negative outcome, the figure, despite projections of an already null reading the actual figure was even lower than expected. Despite this happening last Monday, as fresh data supports the possibility that Germany is heading for a recession, the euro has not managed kick back from last week’s readings.
With the euro down against most major currency counterparts besides the pound, the Consumer Price Index data which is published today may provide a boost that the Eurozone economy needs to bounce back - providing that the readings suggest a positive outlook. There may also be hope for European data in the future too as unemployment data was published last week showing that unemployment within the Bloc has now fallen to the pre-recession period in 2007/08 to just 7.4%. Whilst this is still a way off the US and UK at 4%, the data may indicate signs that there could be better times ahead for the EU.
With a variety of economic data set out sporadically for the US this week and the additional stimulus of the ongoing US-China trade war, the dollar is likely set for some currency movement this week.
Out today is the ISM Manufacturing PMI, Wednesday for the non-Manufacturing data and the volatile Non-farm pay roll to end the week on Friday. That coupled with the US Fed chairman Jerome Powell’s speech to round off the end of Friday’s trading session, this should cause some additional movement to the dollar due to the highly anticipated interest rate cut expected within the year. With US President Donald Trump previously making it very clear on Twitter that he expects rates to be cut down far below the current 2% level, it is no doubt expected that Trump would have preferred a 0.5% cut over a 0.25% cut following the Fed’s recently released target to reach 1.75% in line with inflation levels.
As mentioned prior, the US-China trade war looms on but the outlook is looking hopeful for both sides. Ahead of talks with the US in a few short days, China has stepped up its game in an attempt to offset the damage done by the tariffs added to 50% of their exports. At present, factory output growth is at a record 17 year low and car sales have been down near enough consecutively for over a year creating a real sense of urgency for the Chinese government. With a clear need for a deal to be reached for the Chinese, these talks may open up the necessary circumstances for a deal to be struck.
Today, the Reserve Bank of Australia’s has cut interest rates to a record low to 0.75% down from the previous 1% which it sat at momentarily in 2019 and had remained unchanged in the last 3 decisions. This was a surprising decision for forecasts as was predicted by just 55% of Finder’s panel of experts. The decision had come under criticism with many suggesting that a ‘hold’ decision would have been more appropriate and it would have been better to be “holding it in reserve for a more opportune time” says RMIT University’s Sveta Angelopoulos.
Unfortunately for Australia, its hands are tied when it comes to rejuvenating the Aussie dollar for the most part as the majority of its strength is currently derived from the developments associated with the US-China trade war. As a commodity-currency it relies on positive talks and deals being struck by their connected nations to strengthen their currency which, as mentioned in the USD market report, may not be too far away.
Should US President Trump and Chinese President Jinping reach a trade deal, there is potential for significant inroads to be made for the AUD against its major currency counterparts. Should this be on the horizon, for clients holding or considering investment into AUD, you may wish to discuss options with your account manager here at FCD for an update on your situation.
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