Focus Remains on Core Matters However ECB and Growth Data Could Change the Outlook

Last week saw Sterling lift following the resumption of UK/EU trade talks, after the early week’s standoff between the two respective trading blocks. Whilst fishing and a level playing field remain sticking points, the objective is to conclude discussions for an emergency EU summit in the middle of November. In the meantime, UK Chancellor Sunak announced a more generous Job Support Scheme starting in November as furlough ends this week. Data from the UK remains mixed with retail sales posting slightly better than expected, but the composite PMI activity showed a slowdown in momentum. However, Brexit trade talks and negative rates continue to dominate newswires. The US election continues to pick up momentum with no real blows landed in the second and final Presidential debate with the US set to head for the polls next Tuesday. Meanwhile, it has been reported that early voting has accounted for nearly a third of the total vote numbers seen in 2016. The week ahead will continue to focus on the progress of the UK/EU trade talks, and the final furlong in the US election, although there are some concerns surrounding current Vice President Pence as members of his entourage have been diagnosed with COVID. The centre of attention for the Eurozone will be the ECB meeting on Thursday, the market is not expecting any stimulus until December so the market will focus on signposting by officials to confirm. Monday German IFO Survey  US New Home Sales Markets will

2020-10-26T15:56:35+00:00October 26th, 2020|

UK/EU Trade Talks Drive Sterling Whilst US Presidential Elections Remain in Focus

Last week we saw UK/EU trade talks continue with Sterling nudging higher as hope for a deal continues to grow as the time to complete discussions extends and erodes. EU Chief Negotiator Barnier stated that a deal was unlikely by the October 15-16th Summit and instead the meeting will be used as a stock checking exercise to understand the state of play. There were also reports that Barnier had been instructed to keep a hard-line position on fishing, however, UK Chief Negotiator Frost hinted that fishing measures could be phased in – a big change in tone to what has been stated previously. Ongoing signs of progress helped keep Sterling elevated. While Bank of England Governor Bailey stated that the economic recovery had been very uneven across the country and that risks are very much to the downside. He commented that he strongly hoped that there would be a Brexit deal, but the post-transition period would not be easy. He also commented that we must use policy aggressively and actively with the bank by no means out of firepower. In Europe, market data was quiet but, not without some rhetoric from the central bank. The Euro was hampered by fresh speculation that ECB President Lagarde would signal that the central bank would move towards further monetary easing, including the possibility that interest rates would be pushed deeper into negative territory. ECB President Lagarde reiterated that the bank does not target the exchange rate but is paying close attention to

2020-10-20T09:20:30+00:00October 12th, 2020|

UK/EU Trade Talks Plus Trump’s COVID Concerns Drive FX Price Action

Last week further demonstrated the sensitivity of sterling to Brexit negotiations. Developments from Thursday onwards highlighted responsiveness as the currency traded between a 150-pip range as positive and negative headlines hit the wires. Sterling was boosted by news that UK PM Boris Johnson and EC President Ursula von der Leyen agreed that talks will continue to "close significant gaps". Brexit headlines are likely to continue to dictate sterling movements. We saw the headline Euro-zone CPI inflation rate declined below expectations to -0.3% for September from -0.2% previously. The core rate (excluding food and energy) also declined to 0.2% from 0.4% also below market expectations of 0.5%. This was the lowest core reading since the Euro was introduced and will reinforce pressure for the ECB to take additional action to underpin both reported inflation and inflation expectations. The end of the week resulted in some unexpected news as President Trump released the news that he and the first lady had contracted COVID. Concerns heightened over the weekend as they were taken to hospital. News has since been inconsistent. The market will be focused on when he is discharged (rumoured to be early this week) and what the potential implications are on the next TV debate, voting behaviours and the net impact on the election. Looking to the week ahead, the market will be once again focused on Brexit trade talk developments as we approach the EU summit on the 15th of October. In the meantime, the situation surrounding President Trump

2020-10-05T13:38:51+00:00October 5th, 2020|

Brexit UK-EU Trade Talks: How will sterling be affected?

  History and understanding During the Brexit negotiations in 2017, the UK & EU agreed that trade negotiation could only start after the UK's withdrawal because such negotiations could not happen when the UK still had a veto capability in the EU. For this and other reasons, a transition period after Brexit day (31 January 2020) was defined to allow those negotiations.  The transition period started on the 1st of February 2020 under the withdrawal agreement.   The deadline is the 31st December 2020, a deadline which can be extended for two years, although the British government has declared that it will not apply for any such extension. In 2018 the UK conducted 49% of its trade with the EU, 40% with the Rest of World and 11% with countries that have EU trade agreements.   Figure 1: UK % of Total Trade 2018 Source: Department for International Trade / BBC https://www.bbc.co.uk/news/uk-47213842   Potential scenarios There are various types of deal frameworks available in these negotiations, with the UK said to favour a Canada style arrangement called the Comprehensive Economic and Trade Agreement (CETA). CETA provisionally came into force between the EU and Canada in 2017, this is a free-trade agreement removing 98% of the pre-existing tariffs between the two areas. A CETA agreement between the UK and EU would aim to get rid of most, but not all, tariffs between the UK and the EU, this does not cover anything in services, particularly financial services, which is key to negotiations

2020-09-17T15:22:25+00:00September 17th, 2020|

5 Looming Dilemmas of 2020 & the FX impact

By Jamie Jemmeson ACSI, MSTA & Tyler Betts, FX Risk Manager at Infinity International “You can't connect the dots looking forward; you can only connect them looking backwards. So, you have to trust that the dots will somehow connect in your future.” – Steve Jobs Steve Jobs’ philosophy of trusting that dots will connect may be very difficult to fathom in this current landscape; but who are we to question the man who created the world’s first trillion-dollar company. Infinity International will be providing content to our clients on several relevant topics covering a variety of possible concerns during these unprecedented times. To do this, we are drawing on our own experience, client feedback as well as the input from others in our network. Last month we covered a series on FX hedging and how this could assist your business in managing the current market volatility. This month we are looking at the topics which could impact on currency and potentially drive emotional decision-making surrounding FX hedging. In this series, we will focus on five key looming dilemmas of 2020 and what this may mean for FX. There may only be one or two ‘trend changing’ events in a normal year, that could significantly impact the direction of exchange rates; however, this year we have seen COVID-19 increase volatility with several other events on the horizon. 2020 has been a rocky road to date, but there are five further topics that could further drive market volatility. Each week we will cover

2020-08-21T09:45:21+00:00August 20th, 2020|

Sterling Remains Supported as UK/EU Trade Negotiations Resume

Last week, we saw Sterling remain resilient despite underlying concerns over employment and being plunged into its deepest recession on record as the coronavirus lockdown saw the economy contract by more than a fifth in Q2. With the furlough scheme coming to an end in October there are obvious concerns. However, the monthly GDP for June, which may be seen as timelier, was higher than expected at 8.7% against 8.1% following the easing in lockdown measures. The market will be keen to see if the UK activity can sustain this momentum in the coming months. In the meantime, the UK confirmed that the next round of Brexit talks will take place in Brussels this week with negotiators. Plans include a dinner on Tuesday and a press conference on Friday, leaving only two full days of talks. This suggests that the potential for any breakthrough in negotiations remains limited. Nevertheless, UK chief negotiator Frost stated that a deal was achievable in September and Irish foreign minister Martin also stated that there was scope to find a landing zone in the negotiations. Elsewhere sentiment remained to the upside as broader economic data saw stocks and commodities climbing, a significant development as the Pound has shown itself to be a 'risk-on' currency. Eurozone industrial production rose strongly for the second straight month in June at 9.1% higher than in May; the largest rise since records began in 1991. In the US, the weekly jobless claims dropped below 1m; the first time since

2020-08-17T10:48:54+00:00August 17th, 2020|

Brexit Trade Talks to Impact Sterling in H2

By Jamie Jemmeson ACSI, MSTA at Infinity International UK/EU trade talks seem to be echoing a similar case of déjà vu as Brexit did. Looking back at the timeline we can see a similar scenario from former Prime Minister May’s “Brexit means Brexit” and “no deal is better than a bad deal” to current Prime Minister, Johnson’s “do or die” speech, pushing negotiation right to the limit.  This resulted in a transition deal following the UK’s exit of the EU on 31st January 2020. By the end of the year, both sides need to find ways around their respective differences, reach an agreement and leave enough time to ratify as well as implement the deal in legal text. Looking at what needs to be agreed, the task ahead is enormous, below is a selection of some of the subject matters that need to be in the agreement: free-trade agreement fishing waters agreement security co-operation legal jurisdiction financial sector alignment and Northern Ireland border complications It cannot be ignored that the COVID-19 pandemic has complicated an already tense process. Leaders have been focused on the pandemic as they manage both the economic, health and social fallout. Brexit talks were reduced to video conferences, reducing the opportunity for rapport building often critical to diplomacy. The deadline to extend the the transitional agreement beyond December, expires at the end of June. The UK has rejected the prospect of an extension and has made clear. Unlike other targets, this was self-imposed as it was

2020-08-12T11:46:32+00:00June 25th, 2020|