Morning Brief – Monday 22nd

Playground squabbles

The Dollar is on the rise with the Pound and the Euro feeling the pressure of increased political uncertainty. The Dollar’s early bid of the week stems from the White House’s suggestion over the weekend that arms treaties with Russia should be suspended. Amidst an incumbent crisis in Saudi Arabia, the elevated political tension adds to already significant defensive dollar demand and investors’ appetites for safe haven assets including gold, the Japanese Yen and CHF. Despite government borrowing figures in the UK coming in significantly below consensus and recording the lowest borrowing volumes for September in 11 years, the Pound has failed to sustain its valuation as of Friday’s market close. Following appearances from Brexit Secretary Dominic Raab over the weekend and rumours that May could be willing to break certain Brexit red lines in order to achieve a deal, markets are left waiting for more concrete news. May is due to address parliament later today in an event that could promise to take centre stage. By all accounts, announcement of a deal should be supposed to produce significant fallout within cable with technical analysis suggesting the pair could reach as high as 1.40. EURGBP, however, is likely to be more contained with channel trading to be broken adding conviction to the implausibility of parity. The correlation of Italian yields and the Euro has risen to a 5 year high with intense debate between European institutions and Italy yielding little progress so far. The ECB will host a press conference following its monetary policy decision on Thursday. European Bank President Draghi has already mentioned in previous weeks of the broad risks to growth within the Eurozone economy. Market reaction should be significant if the Bank acknowledges Italy as yet another risk to shaky growth.

Discussion and Analysis by Charles Porter

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