This What a week -and before you think I am referring to Theresa May’s shuttle around firstly the UK to sell her Brexit deal and then Europe to sell her Brexit deal (a theme is developing here) I am, but only in part as much else has been happening in Europe away from the events which explain our fixation on events in Westminster.
After widespread denials that it could possibly happen, Italy confirmed that after huge pressure from Brussels, it was indeed cutting its deficit target from 2.40% to 2.04% which means less spending and less borrowing for Italy-basta as they say in Rome. The sharp eyed among you will note that that involved transposing the last two decimal points; the suspicion has to be that it is a purely placatory measure rather than a serious intent. Nevertheless 10 year Italian bond yields declined to 2.9% and the spread of Italian Bonds versus German Bunds also narrowed. What has that done for EUR/USD? In a nutshell: nothing with USD 1.13 to EUR1 prevailing since the end of October when 10 year Italian Bond yields were 3.7%. What with Les Gilets Jaunes in France and the Little Napoleon Emmanuel Macron being under huge pressure regarding his reforms and TM’s European Tour, the stresses of the third largest European economy if one excludes the UK, should have given markets far more pause for thought. But not a bit of it, the European juggernaut grinds on remorselessly steered by unelected bureaucrats.
Yesterday saw the final European Central Bank Meeting of the year. As widely expected rates were left unchanged and an end to the ECB bond buying programme at the end of this month. ECB President Mario Draghi’s press conference briefing projected calm and assurance with Euro rates to remain low, growth to be 1.9% and inflation to be 1.8%- a near flat line performance that’s hard to get excited about.
So last but definitely not least for the UK and Europe, we turn to TM’s Oliver Twist moment at the dinner with 27 EU leaders last night when she asked: “Please Sir I want some more.” She had looked in turn for political support at home then political support away and unless Mark Rutte and Angela Merkel can prevail on the less sympathetic members of the EU it would look as if she will get nada, nul or nothing in the way of help from them.
So after a week that has seen GBP/USD fluctuate between 1.27 and 1.24 and GBP/EUR between 1.12 and 1.09, we prepare ourselves for yet another new concept to most of us: indicative voting on a range of Brexit options by the UK Parliament: Mamma Mia here we Go Again!
Discussion and Analysis by Humphrey Percy, Chairman and Founder
Click Here to Subscribe to the SGM-FX Newsletter
UK Wages Bank of England Governor Andrew Bailey yesterday warned of the pressure on wages that are threatening to lead to a wage price spiral as the effects of inflation on the cost of living together with the 12 consecutive interest rate rises that consumers have experienced. The market has not enjoyed the poor inflation […]
UK inflation – June hike worthy? Yesterday’s inflation data surprised markets. The data was released slightly ahead of European core trading hours. The lighter liquidity available at this time could have resulted in the short-term spike towards 1.2450 on cable and around half a cent to the mid-1.15s within GBPEUR. However, you could, and perhaps […]
International Monetary Fund With no sign of insouciance despite its 180 degree turn in a two month timeframe, the IMF yesterday reversed its downbeat if not disastrous forecasts for the UK and stated the UK is no longer heading for a recession and nor is it the weakest member of the G7 when it comes […]