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Currency Market Analysis

Oct 15, 2019 | Currency Market Analysis

Global Themes

  • Brexit deal possible this week?
  • Pound plays ping-pong
  • UK labour market data due
  • EUR/USD still holds atop $1.10

GBP

Brexit deal possible this week?

The British Pound went on another charge this morning as the EU’s chief Brexit negotiator Michel Barnier stated a Brexit deal is still possible this week. GBP/USD challenged $1.27 briefly and GBP/EUR peaked over €1.15.

  Mr Barnier was updating reporters in Luxembourg on the Brexit situation and once again the positive tones helped boost sterling. PM Boris Johnson has cancelled a cabinet meeting today to continue with intense technical Brexit talks. Fresh proposals are expected to be tabled by the UK this morning in attempt to break the Brexit deadlock.

  •  Some notable sterling moves include GBP/USD up nearly 4% from last week, GBP/JPY up over 5% and GBP/CHF up over 4.4%.

Pound plays ping-pong

Yesterday was another choppy day in the currency market as sterling swung around with Brexit sentiment. GBP/USD retreated 1.5% from last week’s top, falling just shy of $1.25. The currency pair then staged a rapid U-turn, rebounding back towards an intra-day high of $1.2650, before once again retreating nearly a cent.

  As we enter a crunch week for Brexit talks, hopes of a Brexit deal by the EU summit on Thursday and Friday continue to dominate sterling sentiment. Pessimism about a Brexit deal this week drags the pound lower, whilst optimists continue to buy sterling in anticipation of a deal being approved and a smooth Brexit unfolding. The hullabaloo of Brexit continues to rock the pound as negotiations intensify and time runs out ahead of Oct.19 when MPs sit for a special Saturday sitting. Both Brussels and the government maintain a positive attitude towards securing a deal, but even in this event, the agreement still needs to pass through UK parliament.

  •  If PM Boris Johnson is unable to secure a deal before Oct.19, then he is expected to request an extension to Article 50. The PM continues to state he will not ask for another extension though, and that the UK will leave the EU on Oct.31 with or without a deal.

UK labour market data due

Traders betting on sterling extending its recent recovery will be keeping a close eye on UK labour market data at 9:30am this morning. The pound has already bounced back around 3% against many currencies since last week, hoisted higher by rising Brexit deal hopes.

Today, the unemployment rate is forecast to hold steady at 3.8% - near 44-year lows. Average earnings, including bonuses, are expected to have increased 4% y/y from the three months to August, unchanged from the prior period. Earnings excluding bonuses are forecast to have risen 3.7%, down a tick from 3.8% y/y. UK wage growth continues to outpace inflation, which is usually interpreted as positive for an economy and thus a currency, yet due to Brexit uncertainty, consumer confidence remains clouded and spending lacklustre.

  •  After the mammoth surge in sterling last week, GBP/EUR tested €1.15, but has already dropped below €1.1350 this week. The Brexit battle is sterling’s main directional motivator, but if wage growth increases once again, we could witness an impulsive wave of demand for the pound and GBP/EUR could re-test €1.15 again this morning.

USD

EUR/USD still holds atop $1.10

EUR/USD is testing the $1.1050 zone, helped by a softer US Dollar but also by the positive Brexit developments this morning, which boosted the Euro.

The German ZEW survey at 10:00am will be a main focus point in Europe today. After the bounce last month, against expectations, there is hope today’s reading will show improvement again, which could help support a further Euro uplift. However, the median expectation of a renewed decline to -27 remains a worry for Euro traders.

  •  A positive print could propel EUR/USD towards $1.11 whilst a negative print may drag the currency pair towards $1.10, though this is proving a strong support for now.


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