Euro Pressured by German Impasse
November 21st: Highlights
- Merkel “favours fresh elections”
- UK to offer more to settle “divorce bill”
- Budget to provide assessment of UK economy
Euro suffering as Germany faces “End of an Era”
The Euro has suffered from the concerns around what will happen in Germany and fell to 1.1722 versus the dollar and 1.1290 against Sterling. If fresh elections are held the performance of the right wing AfD will be the major focus following their surprisingly strong results in September.
Mrs Merkel may decide that the time has come for her to stand down given that she could no longer be able to influence the country as she once could. In a similar manner to Margaret Thatcher in the U.K. thirty years ago, Mrs Merkel has become outdated and lacking the foresight to carry the country into the next phase of its development.
Forty Billion ransom offer for Single Market Membership
Hardened Brexiteers Boris Johnson, Michael Gove and Liam Fox had all said that they believed the U.K. should not pay any more than twenty billion pounds, but it seems they have been outflanked by Mrs May who now plans to offer forty billion. It is by no means certain that the EU will accept the new figure, but it certainly moved the two sides negotiating positions significantly closer. However, the issues of EU citizens’ rights in the U.K. following Brexit and the Irish border which have been largely ignored will also need to be found solutions for.
Sterling has reacted positively to the news rising to a week’s high against the single currency and reaching 1.3280 against the dollar, maintaining a run of six consecutive “up days”.
The EU has given an ultimatum of December 14th for provision of proposals for the “three issues” as there is a summit of Heads of Government that is slated to discuss the move to stage two of the talks. If that agreement is reached, it will provide the pound with a boost going into the New Year.
UK Budget to paper over cracks
Hammond will announce measures to increase house building, which will provide a long term boost to the economy, but they will be mostly cosmetic. He could provide business with some encouragement by tinkering with their tax bill but that would be very poorly received by the opposition and given the flimsy support the minority Government has, he may not wish to be too controversial.
Hammond (or his successor) will need to give a huge amount of thought to his next budget as the landscape will have changed completely by then. This will be the final full year budget before Brexit and it will be cast as such unable to provide any guidance on future spending plans while the negotiations continue. There will be questions about the supposed savings that were a major part of the Leave Campaign but those will only be realized once an agreement is reached over the budget contribution.
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.”