Sterling best performing major currency on news of Brexit breakthrough

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18 September 2018

thomasdodds

The Pound rose against almost all of its major peers as markets opened for the week on Monday, with positive noises regarding progress on the issue of the Irish border causing the market to continue taking a more optimistic view over the Brexit negotiations.

A
report released from The Times yesterday suggested that the EU’s Michel Barnier was working on more flexible plans that would minimise physical checks on the Irish border after Brexit. The issue over the border continues to be a significant sticking point throughout the negotiations and the lack of an amicable proposal caused investors to fret that it could derail the possibility of a Brexit agreement being struck in time for the March exit date. Yesterday’s report was therefore a very welcome development, allowing currency traders to breathe a sigh of relief, for the time being at least.

An informal summit in Salzburg later this week could be a critical junction in the negotiations. There are now growing hopes that a rough agreement could be reached, paving the way for a final deal at next month’s EU summit or, more likely, a special summit of EU leaders in November.

US imposes tariffs on $200bn worth of Chinese goods

Meanwhile the main news story across the pond was the confirmation that US President Donald Trump imposed tariffs on $200 bn worth of Chinese goods. News that the US will only impose 10% tariffs instead of the 25% initially proposed led to a renewed appetite for risk, weighing on the greenback and supporting those currencies deemed riskier, the Euro included. We now await news of counter measures from China, which has, as yet, not backed down on calls to retaliate with tariffs of their own.

News on trade will remain the main market mover this week, with no major economic data releases on the docket. We now await next week’s Federal Reserve meeting, in which policymakers are expected to hike interest rates and signal another hike is possible in December.

Eurozone inflation remains unrevised in August

Optimism over the state of Brexit dragged the Euro with it yesterday. The currency also broke above its 100 day moving average, which provided some assistance from a technical point of view and briefly allowed the currency to break the 1.17 mark this morning.

All we received in terms of macroeconomic data yesterday was the final inflation numbers for August, which remained unrevised. It’s worth stressing that the core rate of inflation remained stuck at just 1% in the Eurozone last month, well below the ECB’s 2% target. As mentioned on numerous occasions, we can’t see how the European Central Bank will raise interest rates until we see a sustained uptrend in this measure.