Daily Market Brief 11 September 2017

Sterling mixed ahead of BoE

September 11th: Highlights

  • MPC facing tough call
  • “Chaotic Brexit” if Bill fails
  • Euro steady after ECB

Inflation and employment reports before Bank of England

The pound faces a “perfect storm” of factors this week that will drive its short to medium term direction. Political division, macroeconomic data and monetary policy are the main drivers of currency direction and all three will play a part.

Brexit is the major, some say only, factor driving the pound and the vote on the repeal bill will provide direction today. Inflation and employment data are released tomorrow and Wednesday respectively and will illustrate the rising gap between prices and incomes. Headline inflation was at 2.6% in July and the best that can be hoped for is that is remains the same. Fuel prices are set to rise into the autumn which will lead inflation closer to 3% going forward.

Finally, the Bank of England meets on Thursday and while the vote for a hike in rates will be a wholly predictable 6-2, the comments of Governor Mark Carney will be keenly anticipated.

Carney has kept a low profile recently, likely relieved that while Brexit is a major contributor to monetary policy, he has no direct role to play in its negotiation.

Sterling’s equilibrium is in a particularly fragile state but it is positive results; an easy passage for the reform bill, a shrinking of the gap between wages and prices or a more hawkish statement from the Bank of England, that will have the biggest effect.

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Parliament set to vote on Brexit Bill

The U.K. opposition Labour Party seems unlikely to be able to garner sufficient votes to disrupt the passage of the legislation which will repeal the Bill which took the U.K. into the Common Market in 1973 and enshrine EU laws into the U.K. Statute Books. The vote will take place later, on Monday evening. Quite why the Labour Party is casting itself in the role of “protector” of a soft Brexit is difficult to fathom. Since June’s election it has proved itself to be more astute at reading public consciousness and is trying to balance its remain credentials with the will of the people which is, or at least was, to leave the EU.

The passage of the bill will come as a relief to traders and will likely see further unwinding of record short sterling positions.

Brexit Minister David Davis called on MP’s to show unity to avoid a “chaotic Brexit” but the passage of this relatively minor yet vital legislation will simply pave the way for the battles to come.

The Government faces tough negotiations with the EU, particularly over the amount of the so-called exit bill. It is still far from certain that there will be an orderly departure as the two sides, despite the demise of the “no deal better than a bad deal” rhetoric are as far apart as ever.

ECB remains vigilant despite positive factors

There is an air of positivity surrounding the common currency now which contrasts sharply with the headwinds facing the dollar and pound. The ECB retains the confidence of the market despite its continually dovish outlook. The tapering of the Asset Purchase Scheme is slated to be discussed at the next meeting in October but it is by no means certain that the reduction will start immediately. Mario Draghi was sufficiently dovish and vague in his press conference on Thursday for a delay to be considered by traders.

The Euro has plateaued as traders react to indirect influences created by other currencies. While medium/long term targets remain at 1.2500 and parity the path is unlikely to one-directional.

Draghi’s insistence on a monetary policy which benefits the region as a whole has led to the retention of an “easing bias”. He believes that there are areas of the economy that require stimulus despite almost universal improvement in economic activity.

This week’s events of note

Following the ECB’s meeting traders looked at more in hope than expectation, the spotlight falls on the Bank of England. There will be two dissenters and Mark Carney will express concern over inflation but more concern over the economy.


  • U.K.: Inflation – 2.6% last month. Edging back towards 3% as the gap between wages and prices grows?
  • U.K.: Producer Prices – Factory gate prices could rise again as the pound has fallen in the past quarter. This is a predictor of further inflation “down the road”

  • U.K.: Employment – An entirely spurious attempt to convince the U.K. population that only 4.4% of the population are unemployed.
  • U.S. : Producer Prices – A small increase expected following last month’s fall which led to doubts over further rate rises this year.

  • U.K.: Interest Rate Decision – No change, a 6-2 vote and concerns expressed over the fallout fr0m Brexit
  • U.S.: Inflation – The major driver of future direction of monetary policy. Energy prices rising following Hurricane Harvey could produce a higher than expected number.
  • U.S. : Retail sales. – Last month’s 0.6% rise unlikely to be eclipsed.

  • U.S. : Retail sales. – Retail sales.

Have a great day!

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.”