Good morning,

GBP: May not yet challenged

Sterling has done little in the past 24hrs as all sides of the Brexit argument feel each other out with a little bit of bluff-calling in there for good measure as well.

The most important driver of this relative stability and quiet has been the inability of the European Research Group to summon the 48 letters necessary to prompt a leadership challenge. For a group of people whose main purpose in life is seemingly to do anything to get the UK out of Europe at any cost, they are remarkably disorganised when it comes down to it.

We cannot completely discount away the risk that a leadership challenge is called but the knowledge that such a challenge must then be backed up by another 100 MPs voting against the PM suggests that Theresa May is safe for now.

Of course, the absence of news is not a stable foundation for much of a drive forward; sterling needs positive news more than ever. Next week I’ll be hosting a webinar where I’ll run through a few scenarios of what we think will happen with sterling and the various Brexit deals that may appear in the coming four months. You can register for free here.

Bank of England Governor Mark Carney will testify in front of the Treasury Select Committee alongside three of his colleagues, ostensibly on the finding s of the Bank’s Quarterly Inflation Report but there will be only one topic in town at 10am this morning.

USD: Rate hike doubts keeping dollar quiet

The changes in interest rates in the US economy have been a factor that the world economy has simply had to get used to in the past year or so and investors are similarly more than happy to continue to price in additional rises next year. Concerns about how much further the Fd Funds rate can be increased however are starting to hit the market, and the dollar’s supreme strength is being challenged.

We have to think that the December interest rate hike is safe given the strength of the economic data but the three or four interest rate hikes that the market is pricing in for 2019 are very much in doubt. We are slightly more pessimistic on this than most, looking for only two hikes next year with a slowing of both the US and world economies starting to weigh.

Currencies are always a two-way street – one’s strength is defined against another’s weakness – and the USD can easily stay strong against other currencies depending on their individual circumstances e.g. a slowing Chinese economy weakening the yuan, a no-deal Brexit torpedoing the pound.

There are no Fed speakers due today so any reticence on interest rates will be purely market driven through this session. As long as oil prices remain on the back foot, we think that the US dollar will do as well.

Have a great day.