GBP remains at high levels, USD pushing higher

This is a great piece from our friends FCD:

 Sterling remains at elevated levels against many currencies including reaching a 6-month high against the Euro, at 1.1682 on Tuesday of this week. Retail sales later this morning will be closely watched.

The pound has been stronger as no-deal becomes less likely, owing to the expectation that if it is a Conservative majority, the Withdrawal Bill should be passed. This doesn’t completely remove no-deal but helps ensure there is no immediate cliff-edge which was previously pencilled in for October 31st.

A Labour majority, or Labour coalition with Lib Dem or SNP (Scottish National Party) support, has been outlined to indicate a second Referendum, offering a revised Labour deal with the EU or Remain as the options. Again, this leads to an outcome that is not no-deal Brexit, and sterling is better supported from the possible outcome, as we know from prior experience, the increased likelihood of no-deal has previously triggered sterling weakness.

 GBPEUR rates are a great example of this shift in sentiment on the outlook over no-deal and Brexit. August 10th, 2019 saw GBPEUR fall to 1.0647 on the interbank rate, testing the lowest levels since December 2008. This can be attributed to the higher expectation of no-deal back in August when Boris began to take over negotiations with Brussels.

 Since that August low, to the high reached on Tuesday, GBPEUR interbank rates have risen 9.72%. Will sterling rise higher on the UK election? This question will be answered in less than a month, but until then the market must take cues from the polls.

The 14th November Financial Times Poll of Polls tracker has shown the Conservatives with 39%, Labour on 29% and Lib Dems 16%, with the Brexit Party trailing on 8%. We know from the 2017, 2015 and 2010 elections how wrong the polls can be, if you have a transfer in the coming weeks or even 2020 involving the pound, now may be a time to be making some plans around the possible outcomes from what may be a turning point for Brexit, and sterling exchange rates.

EURO: Firstly, the all-important German GDP (Gross Domestic Product) data at 08.00 this morning has shown the Eurozone’s leading economy avoiding a technical recession, with 0.1% growth for the quarter. 0.1% is not anything to be overly optimistic about however and concerns may remain ahead on the subject of European growth. 

AUD:  Australian dollar, the early hours have seen Australian Unemployment which has seen some weakness on the Aussie dollar so far. Unemployment fell from 5.2% to 5.3% as expected, taking the Aussie 0.5% lower against the pound to 1.8876 on the interbank rate.

USD: After some positive sentiment returning to trade talks, the US dollar was also fractionally stronger as Jerome Powell, US Federal Reserve Chairman indicated he didn’t feel a December rate cut was likely, and the US was reluctant to approach negative interest rates.