Government attempt to allay no deal Brexit fears feeds concerns

The pound fell yesterday versus the dollar as the Government released advisory documents on what no-deal Brexit would look like, the areas of the economy that would be most affected, and what practical steps businesses and the public should consider taking.

Dominic Raab, the UK Brexit Minister set out his vision of “practical and proportionate” advice on steps that should be taken in the event of the UK departing the EU next March with no agreement in place. Since this would also affect the EU, Brussels has also issued guidelines which, naturally, are appreciably more comprehensive and would take until next March to read and understand!

The main areas highlighted by the UK guidelines are 1) the cost of using a credit card within the EU would rise considerably, 2) businesses trading with the EU may need to buy or develop new software to cope with additional customs checks, and 3) UK citizens living in the EU may find their access to bank accounts change and their pension rights removed.

One positive element is that despite a possible shortage of drugs available to hospitals, the process for bringing new drugs to market would be shortened considerably as EU testing procedures would be removed.

It is unclear what the purpose of the two sides documents is, since the public, particularly in the UK hardly need reminding about the coming upheaval.

Sterling fell versus the dollar to a low of 1.2804 before closing a few pips higher at 1.2810. Against the single currency, it was a similar story with the pound making a low of 1.1083 and the psychologically important 1.1000 level is now a clear target.

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Powell speech at Jackson Hole eagerly awaited

Twist or Stick. That is the choice facing Chairman of the Federal Reserve, Jerome Powell as he makes a keynote speech at the annual Jackson Hole Symposium which begins today at the resort in Wyoming.

With President Trump’s recent criticism ringing in his ears, Powell must decide how to emphasize Central Bank independence yet remain in a job. It is expected that he will reiterate the hawkish views of his colleagues on the FOMC who left markets in no doubt following the release of minutes from their last meeting they are very much in “rate hike mode”.

President Trump’s comment that he was “less than thrilled” by the Fed’s actions was prefaced by his saying that he was prepared to allow them (the Fed) to do what they see as best. He (Trump) is, however, famously unconstrained by convention and since the Fed’s independence owes more to precedent than constitution, he may feel obliged to respond to any comments on that subject from Powell, who, of course, was nominated by Trump.

The dollar index rallied a little yesterday reaching 95.71 and closing close to that level as the trade talks between China and the U.S. ended with no agreement reached.

Euro drifting on a sea of indifference

While the strength or otherwise of the dollar provides a stick for President Trump to beat America’s trading partners with and the UK Prime Minister, aware that she cannot positively influence the pound, says its “day to day” level is a matter for the markets, the European Single Currency languishes without a direction, seeming a mere byproduct of dovish monetary policy.

The euro has fallen by around 3% this year versus the dollar but has rallied by considerably more versus Sterling. While this is not a barometer of market sentiment around Brexit, it does appear that should all the pamphlets, advisories and directives on a no-deal Brexit that have
suddenly appeared be necessary, the issues facing UK exporters to Europe may be tempered by a windfall in the shape of a weaker currency.

The Euro remains supported close to 1.1480 versus the dollar but there can be no significant rally from that level while monetary policy remains dovish with no prospect of a rate hike before Autumn ‘19 at the earliest.

Next week sees a relatively light slate of data with German and Eurozone-wide inflation due for release on Thursday and Friday. Almost needless to say in the current environment, both are expected to be unchanged,