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Daily Brief

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"Hold our nerve"

Easier said than done

In parliament yesterday the prime minister exhorted MPs to "hold our nerve" in the closing stage of negotiations with the EU. Not once during the two hours of her speech and Q&A session did she mention the value of sterling: She left that to others, elsewhere, and they picked up the challenge.

Investors clearly missed the bit about holding their nerve. Before, during and after Theresa May's oratory they wrestled the pound lower, such that it fell by an average of 0.6% against the other major currencies. The antipodean dollars and Norwegian krone were not far ahead but eventually it was the British pound that lost the day, collecting its second wooden spoon in as many weeks.

Investors who, only last week, had persuaded themselves that it would be alright on the night, had a crisis of confidence in Brexit and the pound, one that was exacerbated by a simultaneous distrust of Italy and the euro.  Sterling lost one US cent, one Swiss cent and half a euro cent.

Misery loves company

Sterling did not suffer alone. The euro followed a very similar trajectory as both lost out to the US dollar. It was not that investors were newly enthusiastic about the dollar: it was just that they were almost as unhappy with the threat of an Italian debt crisis as they were with the menace of a no-deal Brexit.

Initially on Monday the mood looked positive for Italy and the euro. The EU commissioner had said he would not want to interfere in Rome's decisions. However, it later became clear that his non-interference was contingent on Italy adjusting its budget to fit within EU guidelines; specifically making the deficit less than 2.4%. Italy rapidly made clear that it had no intention of complying. The euro lost half a US cent, falling by an average of 0.2% against the majors.

Also on the hit list were the Australian and NZ dollars. The concern there was about China - the state of its economy in a trade war environment and the possible escalation of that war. The Kiwi fared almost as badly as the pound while the Aussie was only 0.2% ahead.

The Old Lady's men

Two Bank of England MPC members will be speaking today; chief economist Andy Haldane at 10:30 in Paris and governor Mark Carney at 15:30 in Toronto. Whilst neither is likely to say anything new and astonishing about monetary policy, if they stray onto the topic of Brexit there could be repercussions for the pound.

Mr Haldane's topic will be "Policy experiments". Mr Carney will cover "Machine learning and the market for intelligence". Both subjects sound a bit too ethereal to affect exchange rates but you never know.

Ecostats will be few and relatively unimportant. German producer prices are already out - they were up by 3.2% in the year to September. The other figures are for CBI industrial orders, the Richmond Fed's manufacturing index and Euroland consumer confidence. Two Federal Reserve honchos - Raphael Bostic and Chuck Evans - will be speaking this evening.

GBP sinks under renewed Brexit fears

GBP sinks under renewed Brexit fears

EUR suffers continued concern about Italy

EUR suffers continued concern about Italy

AUD hurt by China outlook

AUD hurt by China outlook

USD awaits Fed chiefs' speeches

USD awaits Fed chiefs' speeches

NZD hurt by China outlook

NZD hurt by China outlook

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