Rate Hike Hopes Support Pound
Morning mid-market rates – The majors
September 28th: Highlights
- Retail sales data beats expectations
- Political Concerns hit Euro
- Tax reform progress supports Dollar
Consumer continues to support economy
The pound has risen by 6% versus the common currency since its nadir reached on August 29th. A combination of a possible tightening of monetary policy in the U.K. together with the fallout from the German election have been the primary contributors. Versus the dollar the pound has retraced a little from its highs as a hawkish Fed has provided support for the greenback.
Concerns over Brexit remains a major drag on the pound and will continue until a breakthrough in the talks provides some insight into how the U.K. and EU will interact following the U.K.’s departure. The optimism engendered by the expectation of Theresa May’s speech in Florence is slowly dissipating as the reality of the stalemate over the U.K.’s proposals for the financial and free movement questions posed by Brussels remain. Governor Carney will speak later but his words are likely to be neutral as he ponders the ramifications of higher rates on a weakening economy.
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Euro continues to weaken a Merkel Fires Schäuble
Wolfgang Schäuble the Finance Minister for the past eight years and the architect of austerity seen during the Eurozone debt crisis has lost his job which will bring wry smiles to Athens. A measure of the power wielded by Schäuble can be seen from the comments of the former Greek Finance Minister. Yanis Varoufakis, at the height of the Greek budget crisis, maintained that he wasn’t negotiating with the EU just Germany, and Schäuble in particular.
The job of Finance Minister in the new German Administration is the most senior position after Mrs Merkel and is coveted by the leaders of both coalition parties. Schäuble won’t be disappearing from public office however. He has been asked to become the President of the Reichstag.
There can be little doubt that Germany’s position as the flag bearer for the Eurozone has been considerably weakened as Mrs Merkel will be forced over the coming months to concentrate on domestic matters. Another election is not out of the question as Merkel struggles to negotiate with the FDP and Greens.
Labour Prepares to Govern
There are still doubts over their plans for public spending, government borrowing and Brexit but having been handed a lifeline by the ineptitude of the current Government, they have grabbed it with both hands. As a P.R. exercise, the promotion of Jeremy Corbyn as a credible Prime Minister is something of a triumph particularly considering his seemingly outmoded and outdated politics.
There is still a huge gulf to be closed between hope and expectation but should Theresa May’s Conservatives falter, Labour has proved itself willing if not necessarily able.
Brexit will be the only issue at an election held in the near future and it is likely to prove to be just as beyond the wit of labour as it is proving for the Conservatives. Corbyn would have been far better served by offering to share responsibility in Parliament than telling the Prime Minister to “move over and give him a go”.
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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.”