Bank of England Deputy Governor Ramsden stated that a smooth Brexit outcome would put interest rate increases back on the agenda which provided an element of Sterling support in early trading on Friday. There was a high degree of uncertainty whether the House of Commons would pass the new Brexit deal with the vote expected to be extremely close.
After little change for much of the day, Sterling strengthened after the European close on positive sentiment. Sterling pushed to near 1.2970 against the Dollar and close to 5-month highs.
On Saturday, an amendment was passed which effectively withheld any final approval of the Brexit deal until parliamentary legislation was completed and the main vote was postponed. Prime Minister Johnson technically complied with legislation to ask the EU for an extension for 3 months, but the letter was unsigned and he also sent another signed letter stating that it was a bad idea. The EU will wait to assess the developments in the UK and further House of Commons votes this week. As of writing, Sterling is trading at 1.2915 against USD and 1.1580 against the Euro.
Dallas Federal Reserve (Fed) President Kaplan stated that he was more convinced of the need to act in July and September to cut interest rates and the situation is more balanced now. Kansas City head George stated that her outlook does not call for a monetary policy response with strong consumer spending key to the outlook. Vice-Chair Clarida reiterated that there was no set policy path. Despite the cautious comments from Fed officials, expectations of a further rate cut at the October meeting actually hardened with the chances of a cut seen at 87% and the dollar declined to 9-week lows on a trade-weighted basis.
Nothing noteworthy from the US docket today, where the Monthly Budget Statement is only due ahead of Tuesday’s Existing Home Sales and the Richmond Fed manufacturing index tomorrow.
The Euro-zone recorded a current account surplus of EUR 27.0bn for August from EUR 22bn the previous month with a 12- month surplus of EUR 312bn and 2.7% of GDP. The data reinforced the very strong structural balance of payments surplus which will provide underlying Euro support. German bond yields moved higher ahead of the New York open to trade at 4-month highs which provided net Euro backing, especially as US yields edged marginally lower on the day
Hopes of a Brexit resolution also provided an element of Euro support with 2-month highs around 1.1170 against the Dollar. With no weekend Brexit resolution, the Euro has retreated to near 1.1150 this morning with the US currency recovering slightly.
Posted in Daily Market News on Oct 21 2019