Sterling Ahead on Points
Morning mid-market rates – The majors
February 24th: Highlights
- Brexit pressure versus French Politics
- Trump policies still consist of more words than deeds
- FOMC Minutes continue to confound market
EUR/GBP exchange rate becomes proxy for Risk
Having said that, the consequences of a Le Pen victory in France could be dire for the single currency. The likelihood is still extremely thin, given how far the polls have her behind Emmanuel Macron. Of course if last year taught us nothing else, it taught us not to underestimate the power of the disenfranchised and how opinion polls can be spectacularly wrong!
The British Government is certain to announce a date for triggering Article 50 of the Lisbon Treaty next week. It is still relatively uncertain what effect that will have on the pound but there is every chance Sterling may rally a little. Recent events have displayed a classic sell the rumour buy the fact mentality and so the decision will, at least, end uncertainty. The Brexit bill is still wending its way (serenely?) through the House of Lords and although no major revolt is expected, the Government is under no illusion that the Sovereignty of Parliament must be respected.
Whilst the French election won’t be over until May 7th, there should be a conclusion of sorts on April 23rd, when the first vote takes place. That leaves plenty of time for the Euro to react to the possibility of a Le Pen victory. It will never become a probability until the last vote is counted and a lurch that far to the right would be a seismic event even in French politics and may make the EUR reaction to the Brexit referendum look like a walk in the park!
A stark illustration of the way the EU operates and how it can be expected to be “difficult” in the Brexit negotiations popped up in a most unlikely place; The only land border between the U.K. and EU is in Ireland. The Irish economy is extremely reliant upon the U.K. and the unfettered border between the North and South has been in place in one form or another since long before the uprising of 1916. However when Brexit happens, that border will be closed since the U.K’s membership of the single market and customs union will cease to exist.
Irish Prime Minister Enda Kenny commented that “it was of “vital national interest” that no physical barrier or customs controls be put back on the border with Northern Ireland, but neither Dublin or London have clearly said how this can be achieved. The ever helpful EU Commission has said that Dublin should be “creative” to ensure that Brexit is as painless for them as possible but has banned Ireland from negotiating directly with London.
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Trump policies continue to be more word than deed.
Another issue traders were chewing over was the slightly ambiguous FOMC minutes released on Wednesday evening. Either the economy is already in need of higher rates or it isn’t. To say that it now depends on a group of data from one month is not what markets have come to expect from the Fed over the years.
Australian Central Bank to Keep Rates on Hold
The AUD remained in positive territory having climbed from a low of 0.7150 in January to its current level near to 0.7725. Strong export results leading to a record trade surplus have been the main catalyst for the strength of the currency and with the price of iron ore, Australia’s main export, remaining strong there is no reason to believe a fall back to the lows is likely.
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.”