Brexit trade considerations continued to direct Sterling as volatility spiked. The EU commission stated that the emergency meeting of the UK-EU joint committee had not eased concerns over the Internal Market Bill. According to the EU, the adoption of the bill would constitute a serious violation of the Withdrawal Agreement and international Law. It rejected the UK’s position that it would protect the Northern Ireland peace agreement and called for measures to be withdrawn by the end of September at the latest.
Overall Sterling sentiment collapsed following the statement and the UK currency declined to 6-week lows below 1.2800 against the Dollar and just below the 1.0790 against the Euro.
EU Chief Negotiator Frost had stated that there had been useful exchanges in the latest round of talks, but a number of challenging areas remain and the divergences on some are still significant. EU counterpart Barnier then hit back criticised the UK stance that trust was critical. Confirmation however, was announced that the talks would continue next week.
The Dollar dipped following slightly worse than expected data as the Euro strengthened on ECB Head Lagarde declining to use stronger language surrounding the exchange rate.
Underlying Dollar sentiment remains weak as Brexit tensions dominate the market but upcoming US inflation data due today could catch some traders by surprise if the actual figure differs materially from market forecast. Potentially sparking a sizable move in the Dollar as interest rates look likely to be anchored close to zero for the foreseeable future.
The Euro edged higher heading into the US open with slightly reduced expectations of a very dovish ECB. The Central Bank made no changes to interest rates at the policy meeting and there were also no changes to the quantitative easing programme with bond purchases continuing under the PEPP scheme. The forward guidance was unchanged with bond purchases set to continue until at least June 2021 and interest rates expected to remain low.
The economic assessment was more optimistic, although slightly uncertain over the outlook as President Lagarde confirmed the central bank had an inflation mandate and the Euro was discussed closely in the meeting. Overall, she noted that the deflation risks had declined slightly since June despite the very weak inflation figures for August.
As of writing the Euro trades around the 1.1840 mark against its US counterpart.
Data to watch
13.30 USD - CPI
USD - Core CPI
Posted in Daily Market News on Sep 11 2020