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Ouch!

Told you so

Having been told 87 times by the EU negotiator that the Chequers Brexit proposal was unacceptable, Theresa May went ahead and presented it to the European Council in Salzburg anyway. The council said non/nein/não/ne/όχι/не/uimh for a collective 88th time, the prime minister took umbrage and investors took flight.

Sterling has had worse days than Friday 21 September but, mercifully, not many more. The pound fell by an average of 1.3% against the other ten most actively-traded currencies, none of the losses amounting to less than 1%. Individual examples of the cost to sterling were two US cents, one and a third euro cents and more than two Canadian, Australian and NZ cents.

The prime minister did not help matters with a statement in which she berated the EU for its disrespect and appeared to suggest that what is acceptable to the British government is unacceptable to the EU and vice versa. Her commentary increased the possibility of a no-deal Brexit, the odds swinging from 4/1 earlier in the month to 5/4 at the weekend. It was not what investors had hoped or expected and they ran for cover.

Beyond the front page

The Salzburg fiasco was the biggest story at the end of last week but it was not the only one. Thursday's UK retail sales figures were actually rather good. Japanese inflation accelerated to 1.3%. OPEC rebuffed the US president's call for lower oil prices. And this morning the Sino/American trade war changed up a gear as the new round of tariffs kicked in.

Taken on average, the news served to decrease investors' appetite for risk.  For the first time in a fortnight the Japanese yen was the day's top performer on Friday, strengthening by 1.6% against the pound. Commodity-oriented currencies did not lose ground to sterling (nothing did!) but their gains were among the smallest.

Norges Bank's decision on Thursday to increase its benchmark interest rate from 0.5% to 0.75% was negative for the krone. The move had been widely expected and the central bank's statement implied a long wait for the next upward move. The same day, the South African Reserve Bank kept its repo rate unchanged at 6.5%, eliciting minimal market reaction.

Wait and see

Holidays in China, South Africa, Japan and Australia will not appreciably diminish FX activity today. They do, however, symbolise what, according to the printed agenda at least, should be a quiet day. The only UK statistic is the CBI's Industrial Trends Survey of manufacturing orders.

Monday's other ecostats relate to German business confidence, Canadian wholesale sales and activity indices from the Chicago and Dallas Federal Reserve banks. The minutes of the Bank of Japan's policy meeting tonight will attract more interest than usual: they should shed some light on an unheralded slowdown in BoJ asset purchases last week.

As for sterling, it has been stationary since early on Friday afternoon. The question today is where investors will take it next. 

GBP battered after Salzburg impasse

GBP battered after Salzburg impasse

JPY leads on risk-aversion tilt

JPY leads on risk-aversion tilt

ZAR unaffected by no-change at SARB

ZAR unaffected by no-change at SARB

NOK lower after Norges Bank rate hike

NOK lower after Norges Bank rate hike

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