IFX Market Report: Monday 7th September 2020

As we begin a new week, sterling starts off on the backfoot with no-deal Brexit fears gains momentum.

This story gained traction this weekend when Boris essentially put a deadline on negotiations by saying that “there needs to be an agreement with our European friends by the time of the European Council on 15 October… if we can’t agree by then, then I do not see that there will be a free trade agreement between us, and we should both accept that and move on.” Although the market may not agree with him, Boris went on to note that he has been “absolutely clear that, as we have said right from the start, that [no-deal] would be a good outcome for the UK”.

As we come into Monday morning, developments continue as the FT have published an article detailing the government’s plan to produce an internal market bill enabling them to override key parts of the Brexit withdrawal agreement. Due to be published Wednesday, the purpose of the bill is to “eliminate the legal force of parts of the withdrawal agreement” in areas including state aid and Northern Ireland customs. This move would “clearly and consciously” undermine the agreement on Northern Ireland that Boris Johnson signed last October to avoid a return to a hard border in the region.

As tension have built, so too has the pound depreciated. On Friday, GBPUSD opened the session trading at 1.3285, and after losing momentum in the day, closed more than 50 pips lower at 1.3230.

GBPEUR also lost some ground on Friday, slipping from the 1.12 handle by the end of the session. The pair opened Friday a 1.1218, before closing off at 1.1194.

In regard to the euro, it is likely any aggressive moves by investors will hold off till Thursday, with the main event of the week being the ECB Rate Decision and press conference. Rates are expected to be kept unchanged, but any comments regarding monetary policy or rates will be closely scrutinised.

On the data front, very little to report today, with almost nothing of note to be released. Tomorrow however, at 07:00 we have the Balance of Trade for July from Germany, followed by Q2 3rd Estimate GDP Growth Rate for the Eurozone at 10:00.

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