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Brexit déjà vu

All over by Christmas

The FX market was no more decisive yesterday than it had been on Tuesday. Sterling (GBP) was all but unchanged on average, and flat against the euro (EUR). The safe-havens diverged, with the CHF in second place and the JPY at the back of the field with the USD.

There was plenty not to happen, and most of it did. The risk for sterling (GBP) had been that the EU would offer Britain a Northern Ireland Protocol olive branch, and that Brexit Minister David Frost would reject it out of hand. That was not how it went. Although EC Vice President Maros Sefcovic’s final final offer did not exactly receive a warm reception it has not yet been dismissed by the British government.

Brussels (EUR) hopes there will be a new Northern Ireland Protocol by Christmas. If there is not, it is unlikely to be the only shortage. Congestion at the big container ports (a situation not unique to the UK) coincides uncomfortably with broader supply chain and transport constraints. Toy shops are telling people (GBP) to “buy now” to avoid disappointment and higher prices. Consumers may or may not have been reassured by the chancellor’s confidence that “there’ll be a good amount of Christmas presents available for everyone to buy”.

 

Lower dollar

The US dollar (USD) had two chances to shine and it fluffed both of them. Neither the inflation data nor the FOMC minutes told investors anything they did not already know. After both announcements the USD took a step back, eventually falling an average of 0.5% and giving up half a cent to the pound.

Headline US inflation (USD) came in at 5.4% for September, matching the highs of June and July. The number was incrementally above forecast, but not enough to raise eyebrows or hopes. The Federal Open Market Committee minutes reinforced expectations that the tapering of QE asset purchases will begin next month, with the first interest rate increase coming in September 2022.

Other data yesterday and overnight had a similar lack of impact. NIESR estimated GDP growth of 1.5% for Britain (GBP) in the third quarter. The RICS House Price Balance (GBP) was lower but still solid at +68%. Unemployment in Australia (AUD) ticked up to 4.6% as the number of people in work fell by 138k. Both numbers were close to forecast.

 

Inflation and retail sales

There are no seriously heavyweight ecostats or scheduled announcements between now and the weekend. Today’s potential highlight is an appearance by New York Fed President John Williams (USD). Tomorrow’s is US retail sales for September (USD).

This morning China (CNY) announced that the consumer price index was flat in September and 0.7% higher on the year. Of greater concern to the global economy, producer "factory gate" prices were up by 10.7% on the year, the fastest increase since records began in 1995. Headline inflation in Spain (EUR) was 4%. Sweden (SEK) is up next, with 2.7% expected by analysts. US producer prices (USD) come after lunch, together with weekly jobless claims.

French and Italian inflation data (EUR) appear on Friday morning. The only other European ecostats are for the Eurozone’s balance of trade (EUR). Tomorrow afternoon brings US retail sales (USD), the provisional Michigan index of consumer sentiment and a second appearance by Mr Williams.

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