Global Themes

  •  Brexit deal 85% done?
  •  Euro strength builds ahead of ECB minutes
  •  Dollar falls as stocks slide


Brexit deal 85% done? 

Yesterday, the European Union’s (EU) Chief Negotiator Michel Barnier said a Brexit agreement was “within reach” and reiterated his point made a few weeks ago that a Brexit deal was 85% done. GBP/USD spiked above the $1.32 level but failed to hold above it before the close of trading. Meanwhile, GBP/EUR edged higher against the Euro, creeping higher into €1.14 region. One month ago yesterday, Mr Barnier said in a Eurozone forum that it was realistic to expect a Brexit deal in 6 to 8 weeks, and this may in fact be delivered. With the next EU summit lest than one week away, Brexit news and developments will be heavy watched, and Sterling could become more volatile.

Prime Minister Teresa May could have the backing of 30-40 Labour party members if she can bring back a Brexit deal according to the Times. The support could be great timing for the PM, as the Northern Irish Democratic Unionist Party are ready to vote against the PM in the upcoming budget vote, and against her with any Brexit deal, which would lose the PM her majority in parliament.


Euro strength builds ahead of ECB minutes 

As reported yesterday, if EUR/USD closed above $1.1503 last night, this could have increased the likelihood of a further extension higher due to the technical reversal signal revealed on Tuesday. The currency pair did close Wednesday out at $1.1518 and is indeed advancing beyond $1.1550 already this morning, though extra upside from here remains uncertain. The common currency's gains have been limited by the ongoing concerns about Italy’s new budget plans, which has triggered a dumping of Italian bonds and weakened the Euro of late. However, Italian Economy Minister Giovanni Tria reiterated that the government would do everything in its power to regain the confidence of financial markets, offering the Euro some welcome relief.

At 12:30pm today, the European Central Bank (ECB) will release the minutes of its September monetary policy meeting. At that meeting, policymakers reiterated the “hawkish” message that the ECB’s quantitative easing programme would come to end by December and that interest rates should go up after the summer of 2019. Consequently, the Euro caught a fresh wave of demand on the day of the September meeting and EUR/USD jumped towards $1.17 having wallowed around the $1.15-$1.16 neighbourhood for the 2-weeks prior.

  •  Although the minutes aren’t expected to reveal anything substantially new, investors will likely scrutinise the rhetoric and search for any clues to help guide their expectations of the ECB’s monetary policy path going forward.


Dollar falls as stocks slide 

US stocks suffered the largest daily drop in over 8 months yesterday, prompting the volatility index (fear index) to rise by 44%. The US Dollar has historically benefited at times when fear rises due to its safe haven appeal for investors, but this too fell throughout the day with investors favouring other safe haven preferred currencies such as the Japanese Yen and Swiss Franc. The recent warning from the International Monetary Fund raising concerns about longer term global growth spooked investors, leading to the panic selling. The dollar index (a measure of the dollar’s strength against 6 currencies) has now logged 2 days of consecutive losses but remains above the 95 handle, a level which has been hard to maintain over the past year.

The US Purchasing Power Index (PPI) final number for September fell to 2.6% against an expected 2.8% y/y, the lowest since January 2018. The number will be dwarfed by today’s US inflation figure released at 1:30pm. Consumer Price Index (CPI) for September is forecast to remain flat at 2.4% m/m but is expected to dip to 2.4% from 2.7% y/y.

  •  Should the PPI and CPI numbers miss or fall below current forecasts, traders betting negatively on the dollar could firm their grip on the market, resulting in GBP/USD potentially marching back to $1.33 and EUR/USD back to $1.16.

*The rates displayed by our free currency converter are neither "buy" nor "sell" rates, but interbank rates, the wholesale exchange rates between banks. Interbank rates don’t include the spreads, handling fees, and other charges that may be assessed by foreign exchange providers. Please note that, as such, these rates are provided for indicative purposes only. Prior to booking a transaction, Western Union Business Solutions will advise you of the actual rate then available for a particular currency transaction.

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