Good morning,

GBP: So, what now?

It has been nice to spend a weekend not having to watch the Sunday morning political shows, parsing the double speak of our nation’s decision makers to understand the next shoe drop on Brexit. With parliament on recess now for a week, and Europe kicking the ball back into the Prime Minister’s court, the catalyst for a change will remain the conversations between the government and the Labour party.

Sterling has managed to consolidate above the 1.30 level with the risk of an immediate departure on no-deal, WTO terms from the EU now at least postponed until October. The prospects however for a strong drive higher in the pound will remain limited on the basis that we cannot foresee a substantive change in the economic picture in the UK or globally and the lack of certainty that only political dialogue can provide.

USD: Helping elsewhere

Despite strong data and a slight turn in language by the Federal Reserve last week, the dollar has continued to sell off. In a low volatility environment that we are seeing in most asset classes, investors are more than happy to take on riskier assets than the US dollar. Hence why, looking through emerging market currencies, the week has started in their favour over the more ‘safe’ G10 currencies.

News from Washington has been thin on the ground with Donald Trump spending most of the weekend tweeting about the golf. Trump did interrupt his critique of the goings-on at Augusts National to note that Fed rate rises have been “a killer” and that stocks would be 5000-10000 points higher without them. We can expect further shots at the Federal Reserve whilst the US economy recovers from a soft patch through the turn of the year.

News on the China/US trade deal has also slowed although US Treasury Secretary Mnuchin told reporters that the trade deal being discussed by the US and China would include an “enforcement office” established by both countries to monitor compliance. Expectations remain that an announcement could be made as soon as the end of the month.

As long as volatility remains low, however, the USD could remain on the back foot.

Have a great day.