Political developments continue to dominate the UK currency, with no let-up in tensions between the UK and EU amid the on-going row over the UK’s plan to make changes to the Brexit Withdrawal Agreement signed last year. The amendments would have a serious impact on Northern Ireland customs arrangements and break international law. The EU also reiterated its threat to take legal action against the UK should the legislation surrounding changes be approved.
The UK however, did announce a free-trade agreement with Japan. Unfortunately, this made little to no impact to Sterling.
The NIESR estimated that GDP increased 1.6% for August after the 6.6% increase for July with a further slowdown forecast for September at 0.9%. The three-month comparison would turn positive at 7.0% for August with the annual contraction at 10.2% from 11.7%.
Sterling remained on the defensive on Friday, falling to 6-week lows below 1.2770 against the Dollar and 6-month lows against the Euro to just above the 1.0760.
The House of Commons will debate the Internal Market Bill later today, which will be watched closely by the market, bringing further volatility to Sterling. The UK currency is currently edging higher and punching towards the 1.2840agaisnt the Dollar and 1.0830 against the Euro.
US consumer prices increased 0.4% for August following a 0.6% increase for July and above consensus forecasts of 0.2%. The year-on-year increase increased to 1.3% from 1.0%. Core prices increased 0.4% compared with market expectations of 0.2% with a year-on-year rate at a 5-month high of 1.7% from 1.6%.
The inflation data had little impact, especially with the Federal Reserve targeting a short-term increase in inflation to above 2.0% as part of the new inflation framework.
The Euro continued to trade range bound on Friday with the currency unable to gain any significant traction amid political reservations.
ECB vice-President de-Guindos reiterated that the bank does not target the exchange rate, but that it is an important variable while President Lagarde repeated that the bank would assess incoming data, including the Euro carefully.
Activity this morning seems curbed, as caution ahead of Wednesday’s Fed policy meeting and a lack of fresh data. As of writing, the Euro currently trades around the 1.1840 mark against its US counterpart.
Posted in Daily Market News on Sep 14 2020