Weekly Briefing

Discussion and Analysis by Charles Porter:

Sterling opened approximately in line with Friday’s close of play but has appreciated throughout the morning so far. Over the weekend, rumours have been debated as to the key element’s of Chancellor Hammond’s forthcoming UK Budget speech. Although a while off, markets will jostle to price in the extent of UK borrowing. The day ahead looks to hold particular risk within the Aussie Dollar, with the Reserve Bank due to meet early tomorrow morning UK time. However, as Brexit talks continue to determine Sterling’s value, we look ahead to the next round of negotiations commencing on Thursday.

Sterling Briefing: Technocracy to Politics:

Opening approximately in line with the value recorded on Friday, Sterling markets are largely unchanged after the weekend. Last week and, in fact, those that preceded it, was dominated by the actions, or anticipated actions, of the Bank of England, the UK’s technocratic and apolitical body responsible for setting interest rates.

In contrast, this week will be characterised by the actions of the UK government and its democratic politics. With markets beginning to speculate and price-in Chancellor Hammond’s forthcoming Autumn Budget, and as Brexit negotiations strive to reach ‘sufficient’ progress, the Pound contains both potential and risk.

Euro Briefing: New Equilibrium:

The Euro still trades down against the US Dollar when compared with the enduring levels seen last month. The sell-off from the Euro following Draghi’s dovish taper looks to have stuck with a level of political risk inconsistent with immense short-term appreciation.

Today, there will be a limited significance to Eurozone ‘soft’ data. The release of PMI data, concerning confidence within the Euro area’s underlying economies, is a final estimate of data previously released. As such, there is lower risk associated with its release.

Trump’s Tax Plan:

Anticipation of the tax plan has provided a support to the US Dollar as far back as when the currency president had been elected. The anticipated breaks to business and commerce were received positively by the US Dollar and, as such, markets began to price fiscal progress into the currency right from the beginning.

Despite markets questioning the value of a Trump, Republican, Presidency along the way, they do not appear to have been overly disappointed with the materialisation of the plan. For now then, US Dollar market attention should turn to the facilitation of the plan that continues in Congress today.

The Days Ahead:

The Reserve Bank of Australia will be meeting in the early hours of tomorrow morning to set monetary policy. With interest rate policy stagnating in Australia, with a no-hike for 13 consecutive meetings, the confidence effect of a policy change and upward revision of interest rates would endow the Aussie Dollar with considerable strength. The probability for this looks limited, however, a change to the language and sentiment of the Bank would achieve comparable progress.

Trump’s visit to Asia will contain valuable sound-bites that can easily affect the value of the US Dollar. Similarly within the US, the progression of the Tax plan will not be a one-off event; progress as well as hindrance could appear at virtually any point along its constitutional path. In the UK, tumultuous Brexit negotiations have expectations to fulfil, with second round facilitation expected by December. The extent to which this possibility is priced into the market will determine the fall out from a validation or denial of the conjecture.

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