Sterling Correction Continues
September 18th: Highlights
- U.K. Government facing Brexit Split
- May to Make Policy Speech in Florence
- Vlieghe Comments Push Sterling through strong resistance
Johnson Lights Leadership Fire
Verbal support for Johnson’s missive was scant but there is little doubt that his words resonated with the “Hard Brexit” wing of the Party. He called for any payments to the EU to cease immediately upon the U.K.’s departure and also revisited the “leavers’” mantra that the funds saved should be used to bolster financing for the NHS.
It is significant that the Leadership has already confirmed that Johnson won’t be sacked for his insubordination which adds to the significance of his support.
Johnson’s ministerial colleagues, in particular Amber Rudd, the Home Secretary, were scathing in their criticism of his words calling him a “back seat driver” undermining the Prime Minister who is “driving the Brexit car”.
There can be little doubt that this is the first salvo in a leadership campaign that will be fractious when it happens and could easily lead to a General Election. The opposition Labour Party is ahead in the polls which predict another hung Parliament
The reaction of Sterling has so far been muted as it continues its recent correction.
MPC Member Vlieghe turns Hawkish
Bets on a hike in November have increased considerably although a hike is dependent upon higher domestically derived inflation brought about by stronger wages data and continued rises in consumption.
Sterling reacted very positively to Vlieghe’s comments reaching 1.3617 and 0.8742. It has barely corrected from those levels. Versus the single currency, the ease with which it broke very strong resistance at 0.8820 shows the strength of the correction.
There remain very strong headwinds to the pounds continued progress. Primarily these are political in nature but the economic future is far from certain. It won’t be until the first cut of the Q3 GDP is released in November that the true effect of the fall in business investment will become clear.
May to Provide Brexit clarity in Florence
Given the depth of the chasm between advocates of a soft Brexit versus supporters of a tough stance, no matter what Mrs May says she will be damned by one side or the other.
One thing is clear and that is that the next round of negotiations, which start next Monday, having been delayed for a week to allow for “consultations”, need to show significant progress if the whole Brexit issue isn’t to collapse into further chaos.
Despite the Bank of England’s more hawkish stance, Brexit is still the most significant issue facing the economy.
This week’s events of note
The corrections for the Euro and Sterling likely to continue. Theresa May slated to make a “major policy speech” on Brexit on 21st.
- Eurozone: Inflation – Strong Euro has contributed to benign inflation. A headline of 1.5%, unchanged from July is expected.
- Australia: RBA – Minutes. A hike is coming but the views of RBA members will provide some guidance as to when
- Eurozone: Non-Monetary Policy meeting – An opportunity to discuss wider issues (Brexit and currency strength)
- U.S.: FOMC rate decision – Benign inflation means no change is likely.
- Japan: BoJ rate decision – No change expected as negative rates set to prevail a bit longer
- Eurozone: Sentiment indexes – A possible slowing of manufacturing sentiment due to the strength of the Euro
- Eurozone: Sentiment indexes – Sentiment indexes
- United States: Sentiment indexes – Continued weakness of manufacturing offset by services data
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.”