IFX Market Report: Monday 14th October 2019

The pound enjoyed another day of gains against the US dollar and euro on Friday as markets became more optimistic that a deal would be reached to ensure the UK leaves the European Union on the 31st of October in an orderly manner.

After positive discussions on Thursday between UK Prime Minister Boris Johnson and Irish Taoiseach Leo Varadkar, Brexit secretary Stephen Barclay flew to Brussels to meet the EU’s chief negotiator Michel Barnier. Barnier said the talks were constructive and the 27 EU member states gave him the go ahead to push ahead with Tunnel Negotiations to try and agree a withdrawal agreement before the Halloween deadline.

The Brussels-coined term is for intensified Brexit negotiations which take place between small teams of senior negotiators from the UK and EU, insulated from media scrutiny and leaks.

GBPUSD opened at 1.2453 and climbed for the majority of the day as snippets of positive news filtered through. The pound eventually hit a high of 1.2705, the highest it has been against the dollar in over 3 months and ended up having its strongest week in 2 years.

GBP EUR behaved in a similar manner, opening at 1.1309 and climbing to a 5-month high of 1.1499.

Over the weekend, the Prime Minister updated his cabinet on the progress of the talks at Brussels, saying he believed there was a way forward but also a significant amount of work to do. His aim is for a deal to be agreed in time for EU leaders to approve it at a summit in Brussels on Thursday and Friday. MP’s are due to attend parliament at a special Saturday sitting, the first in decades to either approve a deal or force Johnson write to the EU to seek an extension to Article 50 under the Benn act.

Sterling’s rally ran out of steam over the weekend and is now trading slightly below Friday’s highs, GBPUSD has dropped to a low of 1.2560 and GBPEUR is back below 1.14.

The US dollar slipped on Friday as safe haven buying eased as risk appetite in the market rose following positive developments in the US-China trade negotiations and increased chances of the UK avoiding a disorderly Brexit on Oct 31st.

US President Donald Trump announced a very substantial deal on Friday with China that included a partial pact with Beijing comprising up to $50 billion in agricultural purchases and key issues like IP theft were still to be settled. The tariff hikes on $250 billion of Chinese goods, initially set to go into effect this week, has been put on hold for now.

EURUSD opened at 1.1011 and climbed throughout the morning to touch a 1-month high of 1.1059. The Dollar index fell to 98.22, its lowest in over 2 weeks, but the dollar itself hit a 2½-month high against the Japanese yen of 108.63.

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