News reports overnight are stating that UK and EU officials are now aiming to finalize the Brexit divorce terms by the middle of November. The longer timeframe is another indication that negotiations are struggling to make headway and the risk is that the closer talks run to the UK’s exit on March 29th, the greater the chance that there won’t be a deal. The EU summit beginning October 18th had been earmarked as the deadline. No surprises that we saw further sterling weakness as the probability percentage of a ‘no deal’ scenario continues to increase. Sterling weakness was most telling against the euro where it broke through some further key levels not seen since September last year. EURGBP overnight hit a .9096 high (GBPEUR low equivalent 1.0994, so below the 1.10 mark).
Sterling did fare better yesterday against the US dollar with the greenback coming under its own pressure yesterday too. The dollar’s softness seems to stem from Fridays’ comments by Fed Chairman Jerome Powell who as we highlighted on Monday, stated that the US economy “does not seem to be an elevated risk of overheating”. Markets deemed these comments hinting at a more dovish stance than previously thought, questioning whether the Fed maybe leaning toward ending interest-rate hikes sooner rather than later. The currency’s softness was also down to the dollar coming from a lofty position less than two weeks ago when the overall Dollar Index reached its highest value since June 2017. The currency was starting to show overbought signals. The most dominant currency in the past two weeks has been the euro, although it also hit some minor turbulence overnight giving back a fraction of these recent gains against the likes of sterling and the US dollar. The euro edged lower after the Italian government was said to be asking the European Central Bank to pass a new program of bond purchases to protect the country’s debt. At time of writing, EURUSD was back trading at 1.1663 and EURGBP at .9066 with GBPUSD stuck around 1.2865.
After a light start to the week, the economic data calendar has a couple of main events this week with US GDP figures being the first out later today. Market is expecting the rate of growth to have marginally slowed to 4.0% from 4.1% previously. Whilst slowing, still a strong reading should it materialise and putting it into context, we had the French equivalent earlier this morning which showed growth rates there of only 1.7%.