The US Dollar, which had been stuck in a 0.3% range since the first week of September, has appreciated 0.4% in trade-weighted terms in the past 24 hours after US President Trump made some positive noises about US-China trade negotiations. The past 18 months however suggest that markets will want to see tangible evidence of progress before getting too carried away.
Sterling got within 0.2% of a 3-month high on Tuesday following the British Supreme Court’s ruling that Prime Minister Johnson had acted unlawfully but fell 0.5% yesterday amidst ugly scenes in the House of Commons. The GBP/USD cross, which only a few sessions was trading above 1.25, is down to a 2-week low of 1.235.
Members of Parliament returned to the chamber, 3-weeks earlier than originally planned, with members of the opposition rounding on the prime minister and in some cases asking for his resignation. However, Johnson is seemingly sticking to his plan of getting the UK out of the EU, with or without a deal, despite a recent law making it that much harder for the UK to go down a “no-deal” Brexit path. The government effectively has until 19th October to agree a new Brexit deal with the EU and get it through a
divided parliament and Johnson is seemingly using the threat of an early general election to make that happen. Sterling volatility, which has been reasonably subdued despite the political chaos, could realistically push higher in coming weeks.
Sterling is even under-performing an under-pressure Euro, with GBP/EUR trading sub-1.13. The Eurozone currency trade-weighted index has depreciated back to the weak end of a 2-month range, weighed down by news overnight that German ECB Board member Sabine Lautenschläger had resigned in protest at the ECB’s recent loosening of monetary policies. Divisions within the ECB’s 25-member governing council have been well documented but Lautenschläger’s departure has shed further light.
The Swiss Franc, which had appreciated 0.5% in the wake of last Thursday’s SNB policy meeting, has since gained a further 0.9%. The SNB’s decision not to cut its policy rate (unlike the ECB) has further enhanced the appeal of the safe-haven currency at a time when global risk appetite remains a tad jittery.
Finally, the Kiwi Dollar has seemingly found its feet after having depreciated for four consecutive weeks. It made small gains early in the week and rallied further after the RBNZ left its policy rate unchanged at 1.00% yesterday. While this was in line with analysts’ consensus forecast, there was some market nervousness given the central bank’s greater-than-expected 50bp rate cut at its previous meeting.
