IFX Market Report: Monday 16th September 2019

The pound extended its rally last Friday as investors reacted to reports that Ireland’s biggest political party had potentially agreed to accept certain EU rules. This potentially provides a solution to the Irish backstop that had prevented Theresa May’s withdrawal agreement from gaining parliamentary approval. The pound gained more than 1% against the dollar and 0.8% against the euro at one point.

The prevailing prediction amongst analysts is that the UK is heading for an early election in November or early December with the requirement for a short extension to the deadline. Pushing through a deal could happen if the Conservative party were to win a majority but this is far from certain. Opposition parties have a mixed approach to Brexit so investors are reluctant to place any heavier bets on the pound as this could simply be a brief moment of calm.

GBPUSD opened at 1.2409 and made strong gains across the day, closing at a high of 1.2468

GBPEUR opened 1.1181 and made sharp gains all day, closing near a high of 1.1265 but reaching 1.1288 by the late evening

The euro made more gains on Friday after the European Central Bank exempted euro zone banks from a penalty charge. The euro gained 0.12% against the dollar in the morning, having initially fallen on the news of the stimulus package. The exemption from penalty charges aims to minimise stress on financial institutions and helped the single currency reverse its losses initially.

The dollar made gains against some of its rivals on Friday as President Donald Trump said that we preferred a comprehensive trade deal with China but did not rule out the possibility of an interim pact, as an “easy” agreement would not be possible. Retail sales data on Friday showed sales increased more than expected in August.

Supporting the idea that the economy is experiencing a moderate pace of growth. Strong data on Thursday and Friday is still unlikely to prevent a rate cut by the Federal Reserve this week.

EURUSD opened at 1.1098 and jumped to a high of 1.1105 in the first half of the day before erasing these gains in the afternoon to close at 1.1075

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