Differing reports emerged last week as to whether the so called “landing zone” for a Brexit trade deal could be reached.

UK Prime Minister Boris Johnson met with European Commission President Ursula von der Leyen on Saturday “to take stock of negotiations”. It was agreed that “intensified” talks will commence today for the next eleven days ahead of that crucial EU summit 15th – 16th October. The EU have made clear that these intensive talks are not the same as “going into the tunnel”, the final stage of negotiation done in secrecy once a landing zone is found with compromise positions. The EU often refer to this stage as submarine talks.

German Chancellor Angela Merkel signalled some positive noises on Friday that talks were entering “a decisive phase” whilst acknowledging that it has become clear that Britain “wants more freedoms than just continuing to follow the rules of the single market – We have to respect that. We have to find the appropriate response.”

Boris Johnson told the BBC “I hope that we get a deal, it’s up to our friends. They’ve done a deal with Canada of a kind that we want, why shouldn’t they do it with us? We’re so near, we’ve been members for 45 years. It’s all there, it’s just up to them.”

ongoing Brexit saga is the main reason why the pound has declined so rapidly

In a sign of how things could go either way Robert Peston tweeted on Friday that there is deep suspicion in EU circles as to whether Britain actually wants a free trade agreement, especially so after the government introduced the internal market bill. There is a suggestion that Britain may be negotiating only to find a way of blaming the EU for the absence of a deal, rather than because it actually wants a deal. You could expect high volatility for GBP vs EUR in the last eleven days of negotiations.

The week ends with Friday’s Gross Domestic product number released on Friday for the month of August.

EU Inflation Reaches 4-Year Low

The Eurozone recorded a second consecutive month of deflation which fell to -0.3% in September taking it to a four-year low. The EU has suffered with weak inflation for the last decade and the latest numbers will be of concern to the European Central Bank. The weak data will put further pressure on the central bank to take further action and inject further monetary stimulus to support the economy. The ECB may look to act before the end of the year which could add further volatility for Euro exchange rates. Brexit negotiations to continue this week will also play heavily on the strength of the Euro as both the UK and EU try to find a workable deal.

This morning sees EU retail sales data for August. Purchasing Managers Index data is also released for the services sector which should give some clues as to how well the sector is performing.

US Dollar Volatility

The dollar was already seeing a volatile period even before the announcement on Friday that US President Donald Trump and the first lady tested positive for coronavirus. The combination of a battered economy, racial unrest and Covid-19 have all contributed to US dollar uncertainty.

The markets are also particularly nervous about the risk of a close election result in either candidate’s favour. Such an outcome could result in a protracted dispute following election day which could cause havoc in the financial markets. Donald Trump has signalled he may be unwilling to hand over the keys to the White House if there is a close result.

It is unclear as to whether the President’s quarantine period will end by the time of the next presidential debate on 15th October and whether it will stop him from campaigning in the last two weeks before November 3rd. To date there has never been a case of a presidential candidate withdrawing from the race because of illness. This is now a potential consideration of which there are legal procedures as well as complications should this become necessary.

Friday saw the latest US non-farm pay roll numbers which saw 661,000 new jobs added and unemployment falling to 7.9%. Whilst there are still increasing numbers returning to the workforce it is clear the rebound is not as strong as in July and August where around 1.6 million new jobs were added each month. This is the last set of the jobs data before the election in 30 days’ time for Americans to consider.

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