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Santa Claus, an easy Brexit and other fantasies

Brussels bristles with Italy 

A turbulent day ahead for Brussels, which faces open defiance from Italy regarding their budget for 2019, and the draft Brexit deal from the UK.

Brussels is unhappy with Italy’s plan to rouse their economy by increasing borrowing, decreasing the pension age and introducing a universal basic income. In response to Brussel’s declaring Italy’s budget in breach of their rules, and kick-starting a disciplinary process that could theoretically lead a fine equivalent to 0.7% of Italy’s GDP, Italy’s Deputy Prime Minister, Matteo Salvini, announced that they would respond to the European Commission (EC), dismissively continuing;

“Has the letter arrived? I was also waiting for a letter from Santa Claus. We will discuss it politely as we always have. We will exchange opinions.”

With Italy staring down the barrel of £2tn in public debt, but looking unlikely to blink first, and the EU keen to assert their authority and maintain union within the bloc, expect this story to be ongoing.

Not to be outdone

The pound, unwilling to be left out in this comedy of errors, pulled out of its hat its own trump card, in the shape of worse than expected borrowing figures. Indeed, the deficit rose to £8.8bn from £7.2bn last year, the biggest October figure for three years, and significantly higher than the £6.1bn that was forecast. There is a caveat however, with a Treasury spokesperson declaring it the government's best year-to-date performance since 2005. 

However, since the EU and the UK agreed a draft agreement just this morning, the pound has been picking up pace. It's a rollercoaster ride for sterling this week.

External Bank of England Monetary Policy Committee Member Michael Saunders is due to speak at an Economics Society Dinner later, and as he votes on where the country should set its interest rates. One could expect traders to pick up on any subconscious, or overt, indications on what he considers the health of our economy.

Switzerland sitting pretty

Thanks to its reputation as a haven currency, the CHF has been one of the main beneficiaries of the aforementioned issues. This can be seen particularly evidently in GBP/CHF, which is down 2% within the space of only a week. With more complexity around Brexit, investors seem less interested in the pound and more keen flowing money into safe havens such as Switzerland, doubling the negative effect on this currency pair. 

Data coming out of Switzerland has been positive too, with good balance of trade data released on Tuesday, the trade surplus recorded at 2.6bn CHF in October, which was in line with trader expectations. It wouldn’t be unreasonable for one to expect any further global economic turbulence to be to the Francs’ gain.

Pound picks up after draft deal agreed with EU

Pound picks up after draft deal agreed with EU

Italy’s deputy prime minister announces response to European commission

Italy’s deputy prime minister announces response to European commission

Swiss franc main beneficiary of Brexit turbulence

Swiss franc main beneficiary of Brexit turbulence

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