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A game of endurance

​​​​​​Today's news headlines:

  • ‘House impeachment report concludes Trump abused his office’ – In a report that paves the way towards a potential trial in the Senate, House Democrats have accused Donald Trump of obstructing the Ukraine investigation and other abuses of power. The report states that Trump endangered US national security, undermined the election process and put his own interests above the national interests of the US. Over the coming weeks, Democrats are expected to draft articles of impeachment that will almost certainly pass through the House. Once impeached, a trial will be held in the Senate, where Trump would need to lose the support of 20 Republicans to be removed from office. (Financial Times)
  • ‘Britain's Johnson backs digital tax despite Trump's ire’ – The UK Prime Minister said he would proceed with new taxes on US tech giants Facebook and Google, putting him at odds with President Trump. Johnson said that large digital companies need to make a fairer contribution considering the huge revenues they have in the UK. Under Johnson’s plan, the UK would implement a 2% levy on firms that generate at least £500m a year in global revenue. The US have already threatened France with punitive duties based on similar tax plans, paving the way for similar threats on UK goods. (Reuters)

Trade dispute intensifies overnight

The tit-for-tat trade dispute has intensified overnight. Donald Trump commented that it might almost be better if the Chinese trade deal came after the election, which implies another year of the status quo. It probably doesn’t help that he must pass a bill sanctioning Chinese government officials for the repression of the Uighurs Muslims in Xinjiang. The previous bill - supporting the democratic rights of the Hong Kong protestors - drew Chinese criticism but appeared to remain separate from trade issues. This escalation seems different in that the continuous stream of comments seem to stem from a lack of progress in talks. Looking at the Fed Fund Futures contracts expiring next December, we can see they are yielding about 33bp lower than the effective policy rate. This implies the Fed will cut by 25bps in 2020 and there is a 30% probability of a second cut by the end of the year.

Contrary to expectation, both EU and UK Services Purchasing Manager Index data surprised to the upside this morning. In the EU this means expansion, while the UK is still in contractionary territory. From that standpoint, the Sterling appreciation we’ve witnessed over the past couple days is counterintuitive. Some ascribe this rally to a marginal increase in the chance of a Tory Majority, while others put it down to market technicals. Specifically, it has been suggested that those who have been Shorting Sterling are trying to close out their positions (by buying the Pound) and encountering low liquidity heading into the election. This is entirely plausible and at the same time completely unverifiable. 

Bottom Line: Given the rather unusual move in USD that we noted yesterday, we prefer to watch the Pound rather than draw a conclusion at this stage. For the time being, a strange dynamic is prevailing where increasing risk to global growth is weakening the Greenback and strengthening the Pound. Stay tuned...


After a slow grind higher during yesterday’s trading, Sterling was off to the races this morning, breaking through recent resistance at the 1.30 level against the Greenback. Positive polling data for the Conservatives and Trump’s refusal to weigh in on the UK election have proved to be a catalyst for this morning’s move. Broad US Dollar weakness has also contributed, and we’ll be watching to see if this theme continues throughout today.


This morning’s Sterling move has brought the pair to the brink of March’s high of 1.1803. Any move through this level would open the pair up to a new trading range, not seen since 2017. We’ll be watching for further positive election headlines to support this move and with GBP liquidity thin in the lead up to the election, we expect pronounced volatility in the short-term.


Despite Dollar weakness over the past few days, the common currency is still trading below the 1.11 interbank level against the Greenback. The market sentiment is tilted towards risk-off as hopes for an imminent US-China trade deal fade. Top tier US data is due out later, in the form of ADP non-farm employment change, followed by ISM Non-manufacturing PMI.