GBP in an (EU) State of Flux

FX markets wake up to the EU summit, and groundbreaking comment from the DUP leader Arlene Foster.

"As things stand, we could not support what is being suggested on customs and consent issues and there is a lack of clarity on VAT. We will continue to work with the government to try and get a sensible deal that works for Northern Ireland and protects the economic and constitutional integrity of the United Kingdom."

GBP has retraced lower albeit having hit 5-month highs in GBPUSD. The continued ascent higher was always going to back off at some stage and pause for breath. The FX markets now await fresh news to forge higher.

It could be useful to remember that prior to announcement of a deal being mooted, many economists were looking for a sharp move to the 1.35 area in GBPUSD if agreement was reached. We are essentially half-way there at 1.27/1.28 from the key support pivot at 1.21 from recent weeks and months. And, therefore, these levels pre-suppose an almost 50/50 chance of us seeing a deal of sorts before the 31st October. XE and many other commentators have touted that some form of extension within the surrounds of a deal could be the most likely outcome. As the days pass you could argue that seems increasingly likely.

For those exporters who had not covered some form of hedging in this move, timing could well look good now. FX markets do over-extend themselves in times of volatility and a prudent approach to timing could be the most effective approach. If you do have any questions or thoughts, please do contact us at XE for further clarity for an approach that fits your criteria.

Elsewhere, comments from the US trade secretary that Phase 1 of a deal with China were in progress has supported the US Dollar. The Aussie was also better supported in overnight trade after better than expected numbers. Meanwhile the NZD central bank indicated further interest rate cuts were required, with the backdrop of higher than expected inflation numbers - an interesting dichotomy.

Today’s economic sideshow on the UK comes in the form of retail sales numbers, as the high street continues to struggle and companies unable to get credit insurance. Recent UK data has not been disastrous and we hope that a solid base can be found in retail sales and a continued avoidance of a technical recession.

Expect another continued day of volatility driven by Brexit news, comment and statement. They said it would go to the wire, and so it would seem.

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