Responsibility for Brexit Departure
24th October: Highlights
- Sterling in limbo
- Dollar remains “in demand” despite a slowing economy
- Consumer confidence falls further
No news is…….
The electorate suffering from Brexit fatigue is becoming ever more bored with the whole process. The fact that the deal that was agreed in Brussels last week has been approved by Parliament leads to a feeling that the opposition is simply toying with Johnson just because it can.
In a Parliamentary democracy, a strong opposition is vital to ensure that there are checks and balances but in the current situation, where “the tail is wagging the dog” the entire system grinds to a halt. The purpose of opposition is to aid democracy not to disagree for the sake of it. The current scenario is made worse by the fact that the main opposition Labour party is unable to agree on a salient Brexit policy so is content to stymie the Government although this may not go down well with the electorate when a General Election is eventually called.
While we all wait for Brussels to pontificate on how long an extension to grant the UK the financial markets position themselves according to what has already happened. The sense of optimism that the UK will leave the EU with a deal still exists, but weaker positions have been trimmed although the correction of last week’s high has been shallow so far. Yesterday, the pound traded between 1.2840 and1.2922 versus the dollar, closing at 1.2911. Versus the single currency, it remains well supported having reached a high of 1.1608
Dollar awaits further economic certainty
This whole scenario is simply the hors d’ouvre to the main course which is the FOMC meeting that will take place next week. The run-up to this month’s meeting has been low-key in the extreme with a few ambiguous comments from regional Fed Presidents just about all the market has had to go on. Data releases have been inconclusive, and this has led to a view that failing definitive guidance, the Fed will hold off from another cut this month.
It is certain that should they resist another cut that Fed President Jerome Powell will say at his press conference that the committee wants to see more evidence of both the current state of the economy and the effect of the cuts that have already taken place as they work their way through the system.
The dollar remains in a corrective phase as traders gear up for one last (hopefully) profitable month before year-end. Volatility remains at the lower end of the scale and with what is known, that is unlikely to change unless there is a significant“black swan” event.
The dollar index remains at the lower end of its recent range trading between 97.41 and 97.65. It closed yesterday at 97.47
Activity unlikely to show any improvement without stimulus
Unless there is a significant change in the structural makeup of the region’s fiscal balance it is unlikely that anything is going to change, and the entire experiment could die a slow and painful death.
There is no doubt that the whole of mainland Europe is committed to theideaof a more Federal “Superstate”, but the issue is how that should be achieved. With Germany’s Angela Merkel and French President Macron the prime movers in a more integrated Europe, time is running out as they are both finite in their time in office. Merkel will be gone in two years while Macron is unlikely to be re-elected when his Presidency ends.
While the financial makeup of the Eurozone commands the most attention, it is the political structure that is most unwieldy. With a Parliament, Council and Commission all vying to make policy, and 27 individual Governments each looking out for their own interests, it is little surprise that the status quo remains
Yesterday, consumer confidence data for October was released and it was, again, not only weaker than last month but appreciably weaker than market expectations. That will be followed today by manufacturing and services activity data. A similar result could see the euro fall back to the bottom of its recent range although it is unlikely to break through well-known support levels.
Yesterday, the euro traded in a narrow range between 1.1106 and 1.1140, closing at 1.1130
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.”