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Daily Brief

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Pound picks up as negotiations escalate

Backstop's back 

The pound is continuing its recovery against the euro, following reports that Prime Minister Boris Johnson will reveal an alternative solution to the Irish border issue at the UN next week. GBP/EUR reached a three-month high yesterday in reaction of ongoing progress. Disagreement over the Irish backstop provision in the EU’s proposed withdrawal bill has proved a major sticking point between the EU and the UK, and so a potential resolution could go a long way to calming investors’ fears over a no deal Brexit. Reports suggest the PM is planning to unveil a new proposal at the UN next week, with the newspapers also commenting that he will speak with a number of EU leaders on the sidelines of the general assembly in New York.

Data expected later this week could also affect the pound. Inflation data are due out on Wednesday, while retail sales figures will be released on Thursday. Perhaps the most significant economic event, however, will be Thursday’s interest rate decision from the Bank of England (BOE). Investors expect the BOE to keep rates on hold.  

Relief for EUR 

Better-than-expected Germany investor sentiment data helped to offer some relief to the euro this month and downplay fears of a German recession. Sentiment improved from -43.6 to -22.4 in August, beating expectations of a -32.2 reading.

Although ZEW President, Achim Wambach, summarised this rise as “by no means an all-clear concerning the development of the Germany economy in the next six months”, he then went on to downplay the feared effects of the US-China trade war and a no deal Brexit. 

While all eyes yesterday were on the meeting between Johnson and EU Commission President Jean-Claude Juncker, little was revealed about what went on behind closed doors. Both expressed hope that a deal can be struck, with Johnson “cautiously optimistic” and Juncker stating that “negotiations will continue at high speed”.  

EUR/USD fell yesterday as investors headed to the greenback as a safe haven, and Europe felt pressure from the possibility of US tariffs on EU goods. 

Dollar holds against some 

The dollar is holding its ground against the Euro and CNY following the Saudi oilfield attack. With nearly 5% of the global oil supply halted, a spike in crude oil prices and fears of conflict in the Gulf growing, many are flocking to the greenback out of uncertainty for the world economy. However, JPY, CAD and NOK have strengthened against the US Dollar too. 

Weak Chinese industrial production growth, at its lowest level since 2002, worked in favour of the dollar, helping it to gain on the pound and the euro. Investors are also anxiously awaiting the interest rate decision by the Federal Reserve on Wednesday. A cut of 0.25% is anticipated by many, and has already been priced in, while others aren’t deeming a cut of 0.50% outside the realm of possibility.  

Aussie falls further behind

The Aussie has fallen to the back of the pack following dovish Reserve Bank of Australia (RBA) minutes released earlier today. The statement revealed that Australia’s central bank will consider further rate cuts if necessary, amidst growing concern over the US-China trade war.

GBP: Continuing recovery against the euro

GBP: Continuing recovery against the euro

EUR: ZEW sentiment at the front of this week’s data

EUR: ZEW sentiment at the front of this week’s data

USD: Dollar gains on the back of oil conflict

USD: Dollar gains on the back of oil conflict

AUD: At the back of the pack

AUD: At the back of the pack

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