It was apparent as of market open this morning that the Pound had managed to secure a stronger footing. Stemming largely from a mild improvement in Brexit sentiment, the Pound soon recovered off of its 1.2701 lows against the US Dollar, even breaking through 1.13 against the Euro on two occasions this afternoon. Overnight reports that the vice President of the Commission had guaranteed European institutions access to UK clearing facilities supported the domestic currency and the Euro at market open. The subsequent news that saw the Pound appreciate by around 0.95%, released at 15:27 this afternoon, contained rumours that a post-secession trading deal with the European Union may come as soon as 21st November. The news, which stemmed from a letter written by UK Brexit Secretary, Dominic Raab, got markets momentarily hot under the collar. As the shock reaction slowed, traders’ cold feet returned with the Pound stabilising at a more modest 0.5% gain on the day, on a trade-weighted basis. With an interest rate decision tomorrow at the Bank of England, investors are keeping a wary eye on the words and actions of Governor Mark Carney. Following Chancellor Hammond’s budget speech on Monday afternoon and the promise of increased spending, there could be scope for the Bank to strike a more hawkish tone. However, given the uncertainty of Brexit, a November 2017 style reaction could ensue with investors rewarding the Pound with less value despite higher rewards for domestic investment due to the irresponsibility of the monetary authority in the face of Brexit. Month end balancing flows saw the US Dollar gain significant value with mid-term elections now only one week away. Today’s trading within the Dollar was anticipated to be choppy with necessary flows from passive funds across the globe creating additional and idiosyncratic demand for the greenback. The Rand suffered, getting dragged down by a weakening emerging market sell-off. Yesterday’s weaker Euro was also sustained throughout today’s session as Italian deputy Prime Minister Salvini announced Italy’s budget wasn’t going to budge! With the Commission refusing to accept Italy’s incumbent budget proposal, European risk sentiment continued to sour.
Discussion and Analysis by Charles Porter