Currency markets left playing a political waiting game

​​​​​​Todays headlines:

  • 'Dollar flat as market awaits US-China trade news’. Trade talks are set to resume in Washington today despite the threat of significant tariff hikes on Friday morning. Safe-haven currencies have benefitted, but suggestions of a last-minute reprieve could increase risk appetite significantly. (Reuters)
  • 'Theresa May wins reprieve from Tories after difficult talks with Labour’. The Prime Minister has made no indication of a date for stepping aside, and the red lines around a customs union remain unmoved. This presents an impasse for cross-party talks, so there’s little surprise that Sterling’s pressing towards monthly lows. (Bloomberg)

PM survives another day

It was generally thought the Prime Minister would need to map-out her exit before yesterday afternoon, but another day passes, and again, nothing changes. The Prime Minister remains unwilling to give ground on a customs union, a critical issue in gaining the support of opposition MPs and passing Brexit legislation. Labour has made some positive noises about the discussions, but no tangible progress is evident so far.

China trade talks on knife edge

Chinese negotiators will resume trade talks in Washington today as they attempt to salvage a deal with the US. Regardless of the reason for this week’s change in rhetoric, the US has more to lose from a breakdown in talks than its Chinese counterparts. The DXY Dollar Index continues to sit below recent highs having surrendered ground to other safe-haven currencies. For a substantive increase in risk appetite and a weaker US Dollar, markets will need to wait for a concrete resolution to these discussions.

GBP/USD

The Pound has traded in a very narrow range against the US Dollar in recent hours as an absence of economic news combined with no real progress on the main geopolitical stories resulted in no fresh direction. This theme could continue in the short-term, although developments in trade talks and Brexit will have the potential to initiate a breakout.

EUR/USD

Again, there has been little fundamental news to provide fresh direction for the Euro against the US Dollar in recent trade, resulting in a very constrained market. Economic news remains thin on the ground today.

GBP/EUR

The Pound tested lows for the month against the Euro during yesterday’s session, primarily driven by the ongoing Brexit discord. This made for a third successive day of losses on the cross, the first time such a run has been recorded in over two weeks. In the absence of meaningful developments in cross-party Brexit talks, downside pressures are likely to prevail.