Eight Weeks On:

Discussion and Analysis by Charles Porter:

The start of what promises to be an interesting and path-defining week has begun with similar action. The Euro lost considerable value overnight while coalition talks between Ms Merkel’s Christian Democratic Union and the Free Democratic Party unfurl. Whilst the evidence builds around May’s willingness to increase the Brexit ‘Divorce Bill’ offer and reinvigorate negotiations, the Pound has opened higher. Despite divided opinion about Phillip Hammond’s Andrew Marr Show performance, the sound bites therein, namely the prospect of ‘serious progress’, are also likely to have supported the Pound this morning.

Sterling Briefing: Brexit tailwind

The Pound Sterling has rallied mildly this morning largely on the back of Brexit news and sentiment. Over the weekend, the Financial Times published that Theresa May is willing and likely to up the Brexit Divorce Bill offer. This offer would be likely to facilitate progress in otherwise stagnating Brexit negotiations. Ahead of an EU Council meeting in December and the EU’s deadline for ‘sufficient progress’, progress early on in the 2-year Article-50 limit will be essential to supporting the Pound Sterling.

Today, the Economy and Industrial Strategy Committee, May’s Brexit-focused high salience Cabinet Committee could support, and thus allow, the increased offer. The number, in the order of billions, on offer remains significant, with the highest estimates equating to 5% of household disposable income. However, markets will be focusing on the sustainability of a post-Brexit transition and future UK-EU relationship.

Euro Briefing: Eight Weeks On

Around midnight last night, the German centrist party, the Free Democrats, walked out of coalition talks with Chancellor Merkel’s CDU. Unsurprisingly, the Euro reacted negatively to this news, sustaining its most significant and stark loss in three weeks. Eight weeks on from the German election and Merkel’s fresh mandate to govern Europe’s largest economy, the future of the Bundestag looks uncertain.

The previous coalition between Merkel’s CDU and (now) Schulz’s Social Democratic Party has already been ruled out by the former President of the EU Parliament. Therefore, what shocked the Euro overnight was the possibility that either Merkel must govern from an unstable and unprosperous minority position, or, hold another election. With the threat of Germany’s rightwing political movement subdued, yet still fresh, another election could weigh heavily on the political and economic stability of Germany. Germany, the world’s 4^th largest economy, contains the propensity to unilaterally alter the value of the single currency. Throughout this morning’s trading, the Euro has regained value against the US Dollar despite the weekend’s disappointment.

US Dollar Briefing: Free Ground

Recently, there has been two common themes to explain Dollar weakness. Firstly, a rise in global political risk results in a risk-off market sentiment that harms the US Dollar in favour of safe haven assets. Alternatively, Trump’s long-awaited tax reform faces an inhibition. For now, the tension surrounding the Peninsula looks to have softened mildly. However, the ambivalence of the Dollar to Thursday’s House of Representatives approval could leave the path of the Dollar uncertain during an otherwise quiet week.

The Days Ahead:

This week could prove decisive for international currencies, not least the Pound. On Wednesday, Chancellor Phillip Hammond will deliver the Autumn Budget to Parliament. Largely expected to be dictated by the housing-focused sentiment of Theresa May’s Conservative Party Conference speech, a politically and publicly successful budget will be critical in escaping the familiar politically-driven devaluation of the Pound Sterling.

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