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Committed, curfews and confusion

Committed to Brexit

Sterling has put its best foot forward stepping into the new week, boosted by the news that both the UK and the EU have committed to increasing their efforts in Brexit negotiations. Both UK Prime Minister Boris Johnson and the President of the European Commission Ursula von der Leyen agreed to another month of negotiations in order to “close significant gaps”. With the clock running down as we head to the end of the year, investors welcomed the improved spirit around securing a trade deal and avoiding a no deal Brexit.

Economic data for the UK today includes final services PMI for September, projected to decline from 58.8. The highlight of the week for sterling will be Bank of England Governor Andrew Bailey’s speech on Thursday, while focus will also be drawn to the sentiment of ECB president Christine Lagarde’s fireside chat with the Wall Street Journal online CEO summit tomorrow.


Covid curfews

Positive developments over the Brexit negotiations saw the euro weighed down by sterling pressure as a second wave of Covid-19 cases continues to rage across the continent. European capitals such as Paris and Madrid are facing new lockdown restrictions, with curfews on pubs and restaurants ramping up the pressure on the services industry. Indeed, it was only the poor performance of the US dollar that gave the single currency a break heading into the first full week of October.

Services PMI figures were released for a host of countries across Europe this morning, however weren’t anywhere near positive enough to tell investors anything they didn’t already know. Spanish and Italian initial data came in at 42.4 and 48.8, respectively. In addition, German data were revised to 50.6 from 49.1, while the French figure was unchanged at 47.5 and pan-Eurozone data were finalised at 48.0. On top of this, retail data for August are also expected later today for the Eurozone.


Unclear and confusing

The news that President Trump had contracted coronavirus last week sparked a volatile few days for the dollar, with sterling coming out of the weekend on top, fuelled by a Brexit breakthrough. While uncertainty is growing over whether the November 3rd election will actually take place, at the same time, the odds of a Democrat victory have continued to rise. Reports of the President’s health over the weekend were mixed and confusing to say the least. The media had reported instances of him requiring oxygen on two occasions as well as a steroid treatment, while his doctors had talked up the chances of a hospital discharge as early as today. This will undoubtedly be watched carefully by all, and could have more of an impact than the economic data due out today. ISM non-manufacturing PMI will be released later, with investors anticipating a resilient showing, as will final services PMI, which is expected to show a slight decline from 55 to 54.6.

On the other side of the world, the Aussie is braced for Tuesday and its two key events. Firstly, the RBA will make a rate decision on whether to cut the interest rate from 0.25% to as low as 0.1%. Investors are undecided over what to expect, however the general consensus is that if the rate cut doesn’t happen this month, it will just as likely occur in November. In addition to a potential rate cut, the RBA will also announce the new budget which is set to address the increased spending measures suggested by the bank last month.

Elsewhere, the New Zealand dollar may find some welcome support from tonight’s NZIER Business Confidence figures, forecasted to show a moderate improvement. Canadian employment data at the end of the week and a speech by Bank of Canada governor Tiff Macklem should also paint a clearer picture to the lengths of the country’s economic recovery.

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