GBP slips as Irish Question dominates Brexit talks

Key Movers

England’s cricketers didn’t last until lunch on the fifth day of the first Ashes test and the GBP has followed their downward trajectory: its’ positive momentum of last Thursday now fading under the relentless pressure of the Brexit timetable.


GBP/USD is down from an overnight high just under 1.3330 to open in London this morning around 1.3315. It is 18-20 pips lower against the AUD, CAD and EUR and has gained ground only against a very weak NZD. On the Brexit talks, The EU is in no mood to be rushed; feeling that it can extract a greater sum of money and a better deal for EU citizens’ rights.


The EU insists on no border between the Republic of Ireland and Northern Ireland. But if it wins this, there will have to be a border between Northern Ireland and the UK, something which the Prime Minister’s DUP Coalition partners refuse to accept. Speaking on TV on Sunday, International Trade Secretary Liam Fox said a final decision on the Northern Irish border cannot be made until a UK-EU trade deal has been agreed.


Clearly, there will have to be some delicate diplomacy if Mr Fox’s view is not to undermine the talks in Brussels in just over two weeks’ time. For today, on an otherwise fairly sparse UK economic data calendar, the attention will be on a 6.30pm speech from BoE MPC ‘dove’ Dave Marsden; one of the two members who voted against a 25bp rate hike in November


The US Dollar had a very poor week, sliding lower before the Thanksgiving holiday then tumbling further on Friday to its lowest level since September 25th.

Its index against a basket of major currencies began the week at 93.6. By Wednesday evening it was 92.9 and after plunging through the October 11th low of 92.58 on Friday, it ended the week down at just 92.45; its lowest level since September 25th. Overnight the USD has stabilized somewhat; it is unchanged against the EUR at 1.1930 and 15-10 pips firmer against the GBP, AUD and NZD.

This week, Dr. Yellen is testifying to the Congressional Joint Economic Committee on Wednesday, whilst the Fed’s targeted measure of inflation, PCE, is released Thursday. Recall that the uncertainty over inflation in the November Minutes last week was the main reason for the Dollar’s lurch lower. Interest rate markets continue to fully discount a 25bp rate hike on December 14th but this is no longer much of a prop for the USD.

Traders will instead be watching the Senate Banking Committee confirmation hearing on Tuesday for clues as to what next Fed Chief Jerome Powell may be thinking on inflation and monetary policy. For today, we have just the October New Home sales and the Dallas Fed manufacturing index to watch for.


The US Dollar had a very poor week, sliding lower before the Thanksgiving holiday then tumbling further on Friday to its lowest level since September 25th.


The EUR has paused for breath overnight after its rapid rise last week which saw it jump from a low of 1.17715 on Tuesday morning to a high on Friday of 1.1930; its best level since September 25th. During the Asia session it has hardly moved from Friday’s close; with barely 10 pips separating the high and low and it opens in London today around 1.1920. This leaves the GBP/EUR a little lower at 1.1172.


Looking ahead, we’ll likely see in currency markets a repeat of the tussle between economics and politics. Thursday brings the flash estimate of Eurozone CPI in November but before then, concerns about the strength, or otherwise, of German Chancellor’s Angela Merkel’s position are likely to dominate trader sentiment. The immediate loser in the Coalition talks was SPD leader Martin Shulz, though his party may still be able to extract significant concessions as the price for its ongoing support of the CDU/CSU. It may gain control of the Finance Ministry or it may force Merkel’s CSU partner to abandon the proposed 200,000 annual cap on asylum seekers.


“Hour zero: country without direction, unity, chancellor?” was how Der Spiegel, Germany’s leading current affairs magazine, summed up the crisis. Stern magazine, meantime, depicted Merkel upside down with the headline: “Free fall . . . end of the Merkel era”. Another fascinating week is in prospect for the Germany, the EU and its Single Currency…


The overnight high for the Australian Dollar came pretty much as their batsmen hit the winning runs at the Gabba. Having opened around 0.7615, the AUD/USD pair traded down to 0.7596 around 01.30GMT before opening in London today near the mid-point of its range.


The AUD has also firmed slightly against the GBP and NZD, though is little changed against the EUR and CAD. The week ahead is pretty quiet with the Australian Bureau of Statistics showcasing its expertise in social rather than economic data. Tuesday brings Marriage & Divorce numbers for 2016 whilst Wednesday is all about Ageing & Caring.


The rest of G10 has already published Q3 GDP numbers but Australia doesn’t do so until December 6th. Before then, we get a look at the so-called ‘partial data’ and on Thursday this week it’s Private Capital Expenditure which will be plugged into analysts’ spreadsheets. The same day we’ll also see Building Approvals and RBA Credit numbers.


Meantime, its radio silence as far as RBA speakers are concerned: the next Board meeting is December 5th so there’ll be no clues about monetary policy from Central Bank officials. It could be a long wait until Saturday’s second test in Adelaide.


It’s very rare for the Canadian Dollar to be a major mover in the Asian time zone and this first trading session of the week has been no exception.


USD/CAD opens in London this morning at 1.2715; around 10 pips up from Friday’s close. It may be a subdued start, but we’d expect the CAD to be much livelier as the week progresses, with several highlights of note on the Canadian calendar: the Bank of Canada’s Financial System Review on Tuesday and the release of the labour market report and Q3 GDP figures on Friday. Economists are estimating annualized GDP growth of 1.8% in Q3, down from 4.5% in the second quarter.


Canada is unusual – indeed it is a world leader – in producing monthly GDP numbers. July was flat m/m whilst in August GDP edged down by 0.1% the first m/m drop since October 2016. In between these two big domestic events, on Wednesday we should see a Statement from the 173rd OPEC meeting in Vienna.


The CAD’s reaction to oil prices has recently been quite straightforward, at least until softer economic data were published. If oil can extend last week’s gains – NYMEX Crude reached a fresh 2017 of $58.82 on Friday – then it should continue to offer some support for the CAD before the GDP numbers are released.


The New Zealand Dollar is a touch weaker this morning though it still remains very firmly within the 30 pips range either side of 1.1080 which contained the pair for almost the whole of last week.


It’s important not to exaggerate moves, but we’d note our ‘league table’ of currency performance overnight has the NZD and CAD in bottom spots, the GBP above them then AUD, EUR and USD at the top. The Kiwi data calendar looks a little busier this week, but unfortunately it doesn’t really kick off until Wednesday with the publication of the RBNZ Financial Stability Report and then Acting Governor Graeme Wheeler up in front of a Parliamentary Select Committee.


The main interest will likely be on the assessment of the success – or otherwise – of the so-called ‘macro prudential’ controls in the housing market and whether or not these are to be lifted any time soon. On Thursday the ANZ business survey will be closely watched as it’s the first look at a whole fresh month of data since the new Labour-led government was formed. It will be pored over for any sign that the recent sharp fall in the NZD is impacting confidence, activity or inflation expectations. On this Monday morning in London, NZD/USD opens at 0.6860 with GBP/NZD at 1.9405.