With the end of summer nearly upon up and schools starting to re-open, we expect market volumes to start pick up as the week goes on. However, today’s UK Bank Holiday ensures activity is likely to remain muted for now. In terms of news flow over the weekend first up was Friday’s Jackson Hole and the respective speeches by both US Fed Chair Janet Yellen and ECB President Mario Draghi. For the markets it was more a case of what they didn’t say. Mario Draghi refrained from talking down the euro which gave the numerous bulls a green light to drive the single currency higher again. Meanwhile, earlier in the day the lack of any significant comments from the Fed Chair Yellen failed to offer any counter catalyst for a rebound. All this resulted in another surge higher for EURUSD rising from a mid-afternoon low of 1.1796 to a closing high of 1.1933 close to where we open this morning.
The other news highlight was the release of the opposition Labour Party’s proposal to keep the UK in the single market for as long as four years. The market response so far has been one of nervousness with further uncertainty potentially further muddying waters. Such a move could fracture the Conservatives’ fragile unity. PM May’s lack of a parliamentary majority means it wouldn’t take much for a rebellion of pro-European Tories to nudge the government toward a softer Brexit. In terms of market impact on the pound, it’s hard to properly gauge its direct effect so far due to the backdrop of a surging euro, as EURGBP was rising anyway in line with EURUSD above.