Sterling rallies as no-deal opposition agreed
August 28th: Highlights
- Opposition Parties agree on a no-deal strategy
- Italy inches towards a new coalition
- Officials insist Powell must stand up to Trump
Parliament to be asked to make no-deal impossible
With the Government’s working majority down to just a single vote, Boris Johnson will need to be at his most persuasive when Parliament reconvenes next week to ensure that a proposed vote of confidence doesn’t succeed.
Following the G7 meeting at the weekend, the Prime Minister is more confident about his ability to forge a solution to the concerns that have made MPs reject the Withdrawal Agreement, which raised concerns about the UK’s ability to break ties with Brussels on its own terms.
Johnson still wants to be able to use the threat of a no-deal departure to force the negotiations to be restarted but should that option be taken away, it will considerably weaken his negotiating position.
The threat of a no-deal departure has been one of the major reasons for weakness in Sterling over the past few months so following yesterday’s announcement by opposition leader Jeremy Corbyn, the pound rallied. It reached a high of 1.2310 versus the dollar, closing at 1.2290. Against the single currency, Sterling remains in recovery mode. Yesterday, it reached a high of 1.1091. Closing at 1.1081.
Italian Parties unable to agree on terms of a coalition
With Brussels an interested spectator, unable to influence the domestic policies of one of its members despite the threat to its own survival, the deadline to agree a new Government is winding down.
The main issue concerns the role of a new Prime Minister who will need to be able to agree on policies that Parties from opposite sides of the political spectrum can agree on. Italy is deeply divided over its position within the EU. Resentment over Brussels placing a “financial straitjacket” upon Rome which wants to be able to borrow more and increase public spending to extricate itself from its current economic slowdown. The EU’s growth and stability pact stops Italy producing a budget with a deficit above 3% which it wants to do to invest in public works and infrastructure.
Elsewhere within the region, today’s release of sentiment data for the entire Eurozone will show how the economic downturn is affecting business and consumers. It is expected that consumer confidence will remain unchanged from last month at -7.1, while the business climate may have improved a little. This will provide further evidence that the downturn is slowly bottoming out. Although it may be some time before any positive improvement is seen, the fact that things are not getting worse may provide a little relief to the currency.
Yesterday, the euro fell to a low of 1.1087, closing at 1.1090. While there is little interest to buy the single currency, the worst of the selling pressure seems to have abated for now.
Powell urged to resist Trump criticism
That independence is enshrined in the constitution which ensures that the Administration cannot influence the measures taken by the Central Bank to ensure that growth in the economy is maintained while inflation is controlled.
President Trump has been producing contradictory comments recently criticizing the Fed for not undertaking a more vigorous programme of interest rate cuts to stimulate growth while maintaining that the economy is the strongest in the world. These contradictions have allowed Fed Chairman Jerome Powell to maintain a more measured approach even at the risk of creating a degree of confusion in the financial markets.
Trump’s criticism of Powell has stretched to calling Powell “a greater enemy of the economy than (Chinese President) Xi” and stating that was Powell to resign, he (Trump) wouldn’t stand in his way.
The effect of these comments on the dollar has so far been minimal but as the election process begins in earnest, Trumps attacks risk becoming more strident while the market’s concerns over the Fed’s seeming lack of confidence in its judgement grows.
The dollar remains influenced, in the main, by the global economy and in particular the outlook for a trade agreement with China. The index reached a high of 98.05 yesterday, having been under pressure most of the day. It closed at 98.02.
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.”