Sterling, which was up 2% in the week of 4th October, appreciated a further 1.8% last week, with GBP/EUR and GBP/USD crosses trading near 5-month highs. But volatility remains extremely high, with Sterling currently the second most volatile major currency behind the Turkish Lira.
Sterling, which had been on the ascendancy early in the week despite some disappointing retail sales and labour market data, rallied hard after the UK and EU agreed to a new Brexit deal on Thursday. However, a meaningful House of Commons vote due on Saturday (19th October) had to be shelved after Parliament voted in favour of Parliament having to first approve the legal text underpinning the Withdrawal Agreement. Prime Minister Johnson was, under the Benn Act, forced to write a letter to the EU asking for another time extension and the EU is reportedly considering a 3-month extension to the 31st January 2020. Sterling has given back 0.4% in the past 48 hours.
It remains unclear if and when parliament will try to hold a meaningful vote on the new Brexit deal and whether it would receive a parliamentary majority (318 votes, assuming no abstentions). Sterling volatility looks set to remain elevated in this context.
The Dollar shed 0.6% last week but remains in a narrow multi-month range. The Dollar was not helped by some weak retail sales data for September, with the $-value of retail sales down 0.3% mom (the first contraction since February), and mixed manufacturing data.
Price action in the Euro was modest, with the Eurozone currency edging 0.4% higher to the top end of a narrow 0.7% range in place for the past five weeks. Better-than-expected Eurozone industrial output data and German ZEW economic sentiment figures seemingly helped the Euro at the margin.
Similarly, the Australian Dollar was up about 0.5% last week, benefiting from some tentatively positive developments in terms of the US-China trade negotiations and a 26,000 increase in full-time Australian employment in September. Moreover, RBA governor Lowe suggested that further policy rate cuts may not be necessary but markets are seemingly still not 100% convinced this is the case.
