Sterling hits three week high as Barnier claims Brexit deal ‘within reach’

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11 October 2018


Upbeat comments out of Brexit and some encouraging industrial production numbers provided good support for the Pound on Wednesday, of which rallied by almost half a percent during London trading.

omments from EU chief negotiator Michel Barnier raised hopes that a deal on Brexit could be reached at either the October summit, or an emergency summit in November. He signalled that between 80-85% of the deal was agreed, while noting that progress had been made towards an agreement over the Irish border. The issue over the Irish border has long been a contentious point throughout the negotiations. News of progress on that front is very encouraging, given some thought it could well be the ultimate undoing of any deal.

With next week’s crucial EU summit fast approaching, we expect volatility in Sterling to be high in the coming days. Theresa May is expected to discuss the terms of Brexit with some of the senior officials within her party today, one week before the summit kicks off in Brussels.

US Dollar eases back on falling yields, dovish Bullard comments

The Dollar fell against its major peers on Thursday morning, adding to losses from Wednesday, as US treasury yields eased back from their multi-year highs. The yield on 10 year US bonds rose sharply so far this month on expectations for an aggressive pace of interest rate hikes from the Federal Reserve. This rally, however, may be slightly overdone and we’re currently seeing many traders reverse their bond positions and unwind long US Dollar bets.

Some dovish comments from Federal Reserve member James Bullard also far from helped the greenback this morning. Bullard, the self-appointment most dovish member on the FOMC, claimed that US interest rates were in a good position, and didn’t need to be normalised much more from current levels. This is a sharp contrast to most of the rest of the committee that suggested at the bank’s last meeting that it remains on course to raise rates on another three occasions in 2019.

The latest US inflation figures for September could shift the Dollar when released this afternoon. Other than that, EUR/USD traders will look towards this afternoon’s European Central Bank meeting accounts for a clue as to the timing of the first interest rate hike in the Eurozone since 2011. We think we may see another fairly sharp upward move in the common currency, should the minutes suggest a hike at some point in the next twelve months is likely.