Currency Market Analysis

Oct 23, 2019 | Currency Market Analysis

Global Themes

With Brexit on ice, havens heat up


Major currencies played defense Wednesday, boosting the likes of the U.S., Japanese and Swiss units. The euro, sterling and emerging markets weakened while Canada’s dollar steadied. Foreign exchange continues to revolve around Brexit with prospects of an Oct. 31 U.K. exit from the EU seemingly dashed. The U.K. Parliament’s vote Tuesday for more time to mull the prime minister’s Brexit bill has tested market patience which continues to run thin. The EU is expected to soon rule whether to grant the U.K. more time – likely 3 months or less – to resolve the Brexit logjam. Prospects of several more months of Brexit ambiguity put a brake on sterling’s breakneck October surge of around 6 cents. A trio of central bank meetings Thursday, headlined by Mario Draghi’s ECB finale, along with Norway and Sweden, contributed to cautious, safe haven-supporting sentiment.

EUR

The euro lost the handle on two-month highs against the greenback amid the latest turn for the uncertain for Brexit. Euro players largely moved to the sidelines ahead of Thursday when Mario Draghi will preside over his final meeting as president of the ECB. No policy changes are expected after the central bank beefed up stimulus last month. Still, Mr. Draghi’s assessment of the anemic 19-country economy could elicit a euro response.

CAD

Canada’s dollar was little changed and kept within a half-cent of three-month highs against its U.S. counterpart. The loonie lost some ground this week after Justin Trudeau won a second 4-year term as Canada’s prime minister. The Canadian unit may have neared a ceiling as Mr. Trudeau’s Liberal minority government is expected to need the backing of a left-leaning party like the New Democrats whose environmental focus could thwart new pipeline projects, a potential blow to Canada’s influential energy sector.

GBP

The U.K. pound slid about 1 ½ cents below five-month peaks as Brexit took another turn for the uncertain. Britain’s Parliament this week rejected an expeditious timetable to implement laws allowing it to leave the EU on Oct. 31, setting the stage for several more months of sterling- and economy-negative Brexit ambiguity. With Brexit on ice for now, attention has shifted to the EU to see if indeed it grants the U.K. more time – likely 3 months or less. While weaker, the bottom hasn’t fallen out of the pound given that a no-deal Brexit has seemingly been taken off the table. Expecting the unexpected with respect to Brexit – and sterling – remains a central theme.


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