The pound has remained steady this week as we await more news on the outcome of Brexit negotiations. Michel Barnier commented yesterday “The UK and EU should not be pretending to be negotiating if a Brexit deal is not on the table”.
Boris Johnson has been outspoken in highlighting what he does not like about the current agreement, but Michel Barnier argued that this was not enough, and Mr Johnson needs to be more open with his plans.
Boris Johnson has hinted that there is a possibility that a deal could be on the table at a crucial summit with EU leaders next week, however Johnson appears to be keeping his cards close to his chest with fears that any plans exposed will be rubbished by the EU.
Mr Johnson has insisted there will be no extension for Brexit beyond 31st October so with 42 days to go until the Brexit deadline and no deal on the table the government clearly have their work cut out.
Looking forward to today the UK will release UK retail sales figures this morning with a month on month forecast of 0.0% and year on year forecast of 2.9%. These figures are down from 0.2% and 3.3% previously. Any diversion from these figures could cause volatility in the pound. UK Inflation dropped sharply in August from 2.1% reported back in July to 1.7%. These levels are well below the Bank of England (BoE) 2% target with a slowdown being reported in clothing, footwear, recreation and culture. CPI figures tend to have a direct correlation with interest rate hikes so these figures could influence this afternoons decision.
The Bank of England is expected to keep interest rates on hold at 0.75% however the BoE minutes may give us more insight as to what future plans are and if they are still committed to raising interest rates.
With the UK battling the woes of Brexit the EU has its own problems. Last week the EU introduced further Quantitative Easing with €20bn of bond purchasing per month. The European Central Bank (ECB) also slashed its growth forecast as it warned that economic conditions have worsened. The ECB warned the risk of a Eurozone recession had risen with Germany its largest economy already shrinking. Although some signs are not looking good for the EU, yesterday’s CPI data did offer some stability which came in as expected with YoY at 0.9% and MoM at 0.2%.
Yesterday in Spain King Felipe confirmed talks were over and Spain are heading to the polls for the fourth time in 4 years. Spain’s political climate has been highly changeable in recent years and now Spain will see more turbulent times ahead. Spain will head to a general election on November 10th as Acting Prime Minister Pedro Sanchez said he had failed to secure the necessary support in parliament to form a government. As these events unravel you may see some volatility in the currency pair.
The attack on Saudi’s oil earlier this week seems to be turning into a positive for Trump in his ongoing trade war with China. Now that Saudi’s oil output is down, Chinese buyers seem to be turning to the US to supply other grades of crude oil. Trump could not have predicted this outcome, but once again Trump seems to be coming up trumps.
Officials from the world’s largest economies believe they can come to a resolution regarding the worlds trade wars and will be meeting in October where they hope talks will progress as these trade wars are clearly having an impact on global growth.
Yesterday evening the wait was over when the Federal Reserve (Fed) announced its interest rate decision. As expected, the FED cut interest rates by 0.25% bringing the rates down to 2%. It was no secret that Donald Trump wanted them to do more judging by his regular rants on Twitter, however the Fed was split 7-2-1 with two hawks and one dove. The impact on the exchange rates was minimal with rate cuts being priced into the market however Jerome Powell stated that the US inflation was below target and growth was moderate however leaving the door open for another rate cut this year.
The Australian dollar remains under pressure currently trading around 1.8385 after the Reserve Bank of Australia (RBA) released minutes this week that the bank would look to cut interest rates for a second time in a row. The RBA has warned that interest rates will remain low for some time in order to help improve unemployment levels.
In the early hours of this morning the unemployment figures were released, unemployment has continued its steady grind higher hitting 5.3% up from 5.2%. Unemployment rate has been rising since hitting a seasonal low of 4.9% and is now at its highest point sine June last year so look for volatility in the Australian dollar.
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