Good morning,
GBP: Fresh Brexit headlines, fresh GBPEUR lows
Former ‘red lines’ on Brexit are starting to look less red and a little less like lines this morning with Theresa May’s government set to say that despite the vote for Brexit, the law of the European Union will be the law of the UK a long time after we separate from each other. Today’s latest position paper will outline the role of the European Court of Justice in a post-Brexit Britain and while the government is looking for no ‘direct jurisdiction’ over the UK, it may have full jurisdiction over the rights of EU citizens living here and, of course, any trade deal that the UK may sign with the European Union.
The risk, as with all these developments, is delay; any delay to an agreement on this risks a delay to an agreement on trade and a transitional deal, both of which the UK needs, and wherein the EU hold the upper hand.
Full details will be presented at noon.
It would be easy – but incorrect – to tie the latest move lower for sterling against the euro to this Brexit news. Instead the recent weakness remains a function more of a stronger USD taking GBPUSD lower and all sterling crosses coming along for the ride. Sterling is still not in a position to get itself up off the canvas; it needs stronger data, a hawkish statement from a Bank of England rate setter, a huge Brexit win or weakness elsewhere for traders to stop giving it a kicking.
At the open this morning and depending on how you measure it – via a broad or narrow data set of different currencies – GBP is either 1% or 1.6% away from the lowest level it has ever traded on a trade weighted basis. The pound in your pocket will never have been worth less.
EUR: Draghi may be pre-empted by…Draghi?
While focus is falling on what Mario Draghi will tell those at the Jackson Hole Ecomonic Symposium tomorrow evening, he will give a speech this morning before he jumps on a plane that could easily have more substantive policy in it. For our money we do not think that Draghi will ‘flip his cards’ on future monetary policy at Jackson Hole but a little tickle today could easily give the euro a bit of volatility.
Eurozone PMI numbers are not likely to drive too much today but surveys will likely show that French, German and Eurozone-wide manufacturing and services sectors are still very confident and expecting to continue their recent outperformance.
USD: NAFTA positioning boosts greenback
Renegotiations on the North American Free Trade Agreement is giving the USD a little life against CAD and MXN. Further greenback strength has come from the news that Trump will threaten a shutdown of the Federal government should he not receive the funds that he needs to build the wall – remember that? – between the US and Mexico. September is set to become a month of US political manoeuvring as the US’s debt ceiling needs to be renegotiated and we are in no doubt that someone will play chicken with the US’s credit rating to extract some political points.
The Day Ahead
Let’s wait and see what Draghi says but we would not be surprised if the euro is the main mover on the session today.
Have a great day
Jeremy Cook, Chief Economist