The pound shed some of its early gains on Monday. The catalyst for the volatility in the currency was again found in the headlines with the Brexit negotiations continuing to have a profound effect on the currency.
Sterling then surpassed last week’s high later in the morning, hitting 1.3132. Initially, the optimism for the EU offering a strong free-trade agreement kept the pound well supported. However, the lustre for the offer was quickly unwound as the greenback strengthened and comments from PM May’s spokesman dampened the likelihood of a deal. Further diminishing market hopes was a report that UK Brexit Secretary Raab won’t be heading to Brussels this week ahead of the October EU summit next week. Instead he is due to appear in the Commons today and which point he’ll deliver an update on Brexit negotiations. The feeling now is that a proposal and agreement on the Irish border/backstop is a little way off, which is undermining the pound right now. Overall, Brexit remains at a critical juncture with far-reaching impacts on financial markets.
Today is set to be another quiet day on the economic calendar front for the UK with little to drive momentum. Attention remains affixed to the on-going Brexit negotiations for direction.
United States Dollar
GBP / USD Expected Range: 1.3000 – 1.3140
With US markets closed for Columbus Day, the greenback looked offshore for direction and was slightly higher against the euro for most of the day on Monday.
Equity markets were mixed; the Dow rose 0.2%, while the S&P500 was flat. Tech stocks underperformed, with the Nasdaq down 0.7%. Gold came under selling pressure dropping under $1200 mark.
It’s a quiet day on the economic calendar today with nothing really to note, until tomorrow when New York Fed President John Williams is to speak at an event in Bali.
GBP / EUR Expected Range: 1.1320 – 1.1460
Another fairly quiet session to start the week as holidays across a number of countries meant liquidity remained thin in the markets. The Euro drifted off from the open of 1.1525 as sentiment waned within the Eurozone as concerns remain for Italy’s budget policies following disagreements between government and the EU Union overnight. Yields on 10-year bonds in Italy rose to 4 year highs making it more expensive to borrow money.
German trade balance printed in line with market expectations this morning but hasn’t had too much of an impact on the single currency.
GBP / AUD Expected Range: 1.8390 – 1.8580
The Australian dollar edged higher through trade on Monday bouncing off multi-year lows and pushing back toward 0.71 despite a broad based souring in global risk sentiment. Having suffered heavy losses throughout last week, investors were keenly focused on China’s return from a week long holiday period and the Yuan’s reaction to PBOC moves to ease monetary policy and stimulate growth. The PBOC elected to reduce the reserve requirement ratio for banks in a bid to stimulate lending at the weekend adding increased downward pressure on the CNY and an ongoing expectation of further AUD weakness.
Traditionally you would expect the AUD, as a proxy to the Yuan, to depreciate in the wake of market pressures. However it seems yesterday’s AUD outperformance stemmed from a wider need to take stock following last week’s moves. There is a sense investors were getting ahead of yesterday’s depreciation, firming short term supports.
Broader direction will continue to be driven by wider risk trends as US bond markets and equities return, bringing with them volatility and the possibility of renewed downward pressure. We will be keenly attuned to moves above 0.71 and extensions in losses below last week’s low at 0.7040 as keen markers of direction.
GBP / CAD Expected Range: 1.6880 – 1.7010
The Canadian Dollar slipped lower through trade on Monday. It underperformed in what was largely a quiet start to the week as most North American investors enjoyed an extended weekend in observance of Columbus Day and Canadian Thanksgiving celebrations. With little to drive domestic data the CAD mirrored moves in crude oil prices.
Attentions now turn to equities, broader risk sentiment and ongoing oil price fluctuations for short term direction.
New Zealand Dollar
GBP / NZD Expected Range: 2.0200 – 2.0360
The kiwi retreated to its lowest level in over 2 years on Monday, touching 0.6423 vs. the greenback early in the Asian session and failing to make any recovery. Trading volume was thin on the day due to the US holiday meaning the NZD/USD traded within a tight band in and around the 0.6440 level. There is also the risk-off element to unpick which continues to weigh on commodities, and by association commodity correlated currencies such as the NZD, CAD and AUD. Between the rising conflicts between China and the US on the trade front, and continued uncertainty on the situation in Italy, traders remain cautious on the Kiwi.