Sterling Driven by Threats and Promises
November 28th: Highlights
- Brexit proposals demanded by 4th December
- Sterling reaches eight week high versus weaker dollar
- Powell appointment to be confirmed
Hard Brexit becoming a real possibility
The U.K.’s offer over the financial consideration looks likely to be made at forty billion Euros. There are now rumours that the U.K. is set to make concessions over the treatment of EU nationals remaining in the U.K. after March 2019. Any concessions will anger Brexiteers who will see such a move as contrary to the original question asked in the referendum.
The third and final point, the question of the Irish border has come out of nowhere to become the most contentious of the three. The reason for this is that it raises the issues that have seen the North and South of the island be at each other’s throats for almost one hundred years. The Republican South say they will veto any agreement that creates a “hard border” as it could spell disaster for their economy only now recovering from the financial crisis. The Unionist North, who are propping up Theresa May’s minority Government, want a closed border and the Republic to be “cut off” from the rest of the U.K.
Pound climbing against weaker dollar
Versus the Euro, the pound has been treading water, capped by traders’ reluctance to buy due to Brexit uncertainty but supported by the issues facing Germany and the easy monetary policy being followed by the ECB.
The pound reached a low of 1.1095 last week but since then has rallied reaching 1.1309 before drifting back into its present range between 1.1150 and 1.1250. There is unlikely to be any significant move out of this range until the EU’s Brexit ultimatum expires although month end buying of Euros could provide a test of support at 1.1080.
As the market thins out through December and year-end approaches, liquidity will dry up a little and with the EU Heads of Government Summit on 14/15 December Sterling could spike in either direction based upon whether a decision is made or not.
Powell remarks to Congress follows Yellen’s path
The dollar index has been languishing recently driven by the inability of Congress to make progress on President Trump’s fiscal reform bill. It reached a low of 92.50 yesterday, its lowest since September 25th. The major constituent of the index, the Euro, has risen over the past few days as economic data has been stronger than expected and a solution to the German constitutional crisis appears within Angela Merkel’s reach
Yesterday, two prominent Republican members said they would vote against which could kill the bill and send Trump back to the drawing board.
The dollar is likely to remain supported at these lower levels as Powell’s words could be interpreted as confirming his desire for a hike at the December FOMC meeting although November’s employment and inflation data will be released before then.
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.”