UK now expecting a blink from EU
10th September : Highlights
- UK accused on undermining international law over Brexit
- Dollar fails first test
- Europe facing an unemployment crisis among under 25’s
Sterling volatility on the rise
If you take away the prevarication from the discussions it betrays the lack of trust the two sides have for each other. Yesterday the UK released the terms of its internal market bill. This is the legislation that will determine exactly how the UK will deal with the transport of goods between the mainland and Northern Ireland.
Hidden in plain sight in the document was the potential bombshell that the UK Trade Minister will have the authority to effectively change the terms of the agreement that formed part of the Withdrawal Agreement that was signed last year and is governed by international law.
To say the EU Commission is concerned is a massive understatement. Ursula von der Leyen, the EU Commission President has already commented that she expects the UK to comply with international law and implement the withdrawal agreement in its current form.
The question now is does Boris Johnson intend to continue to use every tactic available including breaking the law, to get the deal he desires from Brussels?
The fallout from the publication of the Bill comes from several quarters. Former PM John Major, a fierce European said that should the UK be seen as untrustworthy it could cause damage that can never be repaired. Even Nancy Pelosi the U.S. House Speaker commented on her concerns for the Good Friday Agreement and the effect of any changes on the possibility of a U.S./UK trade deal
With virus cases rising among the younger age group, the Government took the unusual step of reinstating the rule of six nationwide yesterday. It means that gatherings of more than six people are now unlawful, and the rules will now be more strictly enforced.
Statistics show that the rise in cases and their demographic coincides with the reopening of pubs and restaurants. The Government is clearly against a blanket shutdown, but it may come to that if a crossover to the older generation is seen.
The pound had a volatile day yesterday as traders grappled with drivers on several fronts. It traded between 1.2885 and 103023 but closed at 1.2998, twenty-five pips lower on the day.
Powell’s words over length of recovery coming true
There is a growing feeling that the political power plays that have taken place between Trump and House Speaker Nancy Pelosi are causing insolvencies that are wholly avoidable.
The trillion here trillion, trillion there argument regarding the level of support Congress can provide has perfectly illustrated the fracture between Government and the Legislature and threatens to delay the recovery at a grassroots level
There have been comments recently that an agreement over the replacement for the Bill that expired on 31st July may not come until after the election which leaves a large part of the economy exposed.
Fed Chairman Jerome Powell spoke back in May of the need for Congress to ensure that support be made available freely and without conditions but the American Way, where individuals are expected to stand on their own two feet, clouds any agreement.
Providing social security benefits to those out of work have always been a difficult subject, with those in favour labelled as socialists, just about the biggest slur in American political life.
Respondents to a small business survey released recently see the level of GDP to remain below its December 2019 level until at least early 2022. This means that the new Administration, no matter who the President is will be faced with an ongoing crisis for the entirety of its first 100 days which is always considered a crucial part of any Presidency.
The dollar index failed the first test of its recent recovery yesterday failing to break and hold above the 94 level. It reached a high of 93.66, closing at 92.25.
10% now and acceptable level for Brussels
This is an ongoing issue for Brussels and has been for some time to such an extent that now appears to be an acceptable level.
Employment is an issue that falls between the cracks for Brussels. Recent talk about state aid, that has been an issue for Brexit Negotiations, forms a significant barrier to providing jobs in several member states.
Brussels tends to see employment as an issue to be dealt with at a local level, but with the ongoing crisis and the strict supervision of the distribution of support an EU-wide policy that sets out what is acceptable may become necessary.
The diverse requirements of individual economies in their recovery from the Coronavirus Pandemic may see the entire process be governed by the lowest common denominator.
Brussels’ infatuation with centralization, which was mentioned here earlier in the week, means that they believe that all nations should be treated equally. Not only are the individual States recovering at a different pace, but their economies need to be stimulated in different ways.
For example, the near decimation of the holiday season in Spain and Italy presents different issues to, say, Germany, where industry is struggling to gain traction and services companies are losing market share.
Today’s meeting of the ECB Governing Council may bring on a feeling of deja-vu. Pledges of support and wait and see tactics will be to the fore and President, Christine Lagarde, will undoubtedly be questioned about the Bank’s attitude to inflation in the wake of the Fed’s changes to its inflation targeting procedure.
Yesterday, the Euro fell to a low of 1.1752, but rallied to close at 1.1803. The 1.1780 level is seen as critical in the short term and a close below that level may see traders decide that the recent bout of relative strength is over.
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”