Brexit fall-out

3 minute read


As far as the economic data were concerned the USD maintained a low profile. The only statistic of any importance was the Bureau of Labor Statistics JOLTS (Job Openings and Labor Turnover Summary) report. It revealed a 1.7% monthly rise in vacancies, echoing anecdotal evidence that employers are finding it more difficult to recruit and retain workers.  

The festering trade war and the detention without bail of Huawei's CFO threatened to put Apple's Chinese manufacturing facilities in Beijing's cross-hairs, contributing to risk-off sentiment and helping the USD.  It was the day's top-performing major currency.


The euro zone data generators were also taking it easy.  This morning's only statistics were  the ZEW (Zentrum für Europäische Wirtschaftsforschung) measures of investor confidence.  Both groups were less pessimistic. In Germany sentiment improved from -24.1 to -17.5 and in pan-Euroland it was a point better at -21.0

The EUR was relegated to the back seat on Monday, partly as a result of the paucity of Euroland data and news but mainly because investors' eyes were on Brexit and the British pound. A sharp drop for the GBP dragged the EUR in its wake and it approaches this morning's New York opening 0.3% lower on the day.


Housing data from Canada were split. Building permits fell 0.2% in October while housing starts were up by 4.3% the following month. Both numbers were ahead of forecast, housing starts especially so because they had been expected to decline.  

Nevertheless, a downward drift in oil prices made life difficult for the Loonie.  Friday's bumper employment figures were forgotten as investors marked down the CAD.  Having begun in Europe the decline continued through most of the New York session, leaving the CAD 0.7% softer on the day.


Among the major currencies - and the vast majority of the minor ones - the GBP was  by far the biggest loser. It was down by 0.9% against the USD, touching an 18-month low along the way. The decline, which had begun as a result of disappointing UK economic data, gathered speed on rumours that the government would postpone or cancel today's planned parliamentary vote on the Brexit withdrawal bill.

When the prime minister told the House of Commons that she would indeed postpone the vote, the GBP went into full retreat. Theresa May will spend today trying to squeeze concessions from other EU leaders, in order to make her legislation more palatable across the Commons. Yet the government and the EU have repeatedly insisted that the deal on the table is the best possible and cannot be changed. So the process has been thrown into chaos, making it appear as though the eventual outcome depends on nothing more  than a crap-shoot. The situation does not make investors well-disposed to the GBP.


On Friday the USD lost ground to the JPY and this morning it made headway, leaving the two currencies just about unchanged on the day against one another.  

Friday's move was principally a function of dollar weakness; this morning's related to weakness on the part of the yen. The revision to Japanese gross domestic product showed the economy shrinking by an annualized 2.5% in the third quarter rather than the 1.9% contraction reported previously. 

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