Good morning,

GBP: Halloween just got scarier

The EU and the UK agreed last night to a six month extension to the Brexit process, pushing the date of no-deal back until October 31st and knocking the ball back into the Prime Minister’s court as to what happens next.

Theresa May will make a statement to parliament later today and conversations with the Labour party are ongoing. She has said publicly before that she would not allow Brexit to be delayed beyond the end of June and so we have to wonder just whether we are in line for another round of voting on her Brexit deal or whether she has now decided that it is someone else’s chance to try their luck as PM.

Sterling has not done much overnight –  an extension was widely expected to be granted and, while the no-deal risk has been booted into the long grass for a few months, the risk of an election, a hard Brexiteer taking over the leadership of the Conservative party and continued economic malaise have all risen and remain high.

While remaining part of the EU for longer either via an extension or an outright revocation of Article 50 will continue access to the single market for goods and services as the UK has had throughout the negotiation process, it offers little clarity on investment or the future relationship to allow these businesses visibility on how their business needs to position themselves.

Hence why GBP once again finds itself within a stone’s throw of its centre of gravity throughout these negotiations of 1.30 against the USD; nobody really knows what’s going to happen next.

EUR: No new news yet

Yesterday’s European Central Bank meeting was an exercise in boredom. There were very few additional details announced on any new stimulus plans for the Eurozone economy despite a continuation of the weakness in the economic data in the past month. The overall tone of the meeting was dovish, and the euro slipped as ECB President Draghi spoke. The overall belief of the European Central Bank remains that, while downside risks to the Eurozone economy remain elevated and wider protectionism concerns could also damage the outlook, these pressures will soon come to pass.

Focus for the single currency today will fall on European member state inflation measures throughout the session.

USD: Through the rough patch

US ratesetters showed a little perspective in the minutes of their latest meeting although the impact on the USD was fairly muted. While the Federal Reserve noted that their expectations for the economic growth have dipped in recent quarters, they were at pains to make clear that they do not see the weakness seen between December and February as a new normal for the US economy.

As we have noted before, the two pieces of data that we will be focusing on to make sure that we can gauge whether the US economy is picking up the pace again will be labour market news and whether US businesses are working through their overhang of inventory goods that built up in Q4. If both keep going in the right direction then calls for rate cuts in the US are going to dissipate quickly and the USD could be on for strong move higher.

US producer inflation numbers are due later and will be able to show us whether businesses are still able to move prices as they wish to or if they are getting push back from their customers.

Have a great day.