IFX Market Report: Monday 9th September 2019

The pound fell slightly on Friday after a turbulent week which saw it plunge to a three-year low before making a strong recovery. British lawmakers have voted to block a no-deal Brexit, making a general election much more likely. The upper house of parliament voted to approve a bill which blocks a no deal Brexit by the end of October and forces the Prime Minister to request an extension. The Government has vowed to do everything they can to challenge this legislation and find a loophole to prevent any delay.

The pound was down 0.2% against the dollar and 0.3% against the euro near the end of the day. However, this was still near sterling’s strongest level since late July. The main drivers of the pound’s strength are now the uncertainty of the election’s timing and who eventually goes on to win.

With financial markets preferring a soft Brexit or no Brexit at all, analysts have said if a Labour-led government favouring a second referendum wins, the pound could hit 1.30 against the US dollar compared to 1.25 if this majority was shared with other parties.

GBPUSD opened at 1.2310 and was steady for the first half of the day, then dropping slightly in the afternoon to reach a low of 1.2289

GBPEUR opened at 1.1141 and made slight gains in the morning before erasing these losses in the afternoon to finish almost unchanged at 1.1138

The dollar was also slightly lower against a basket of currencies on Friday, near a one-week low, as data showed mixed results in the US jobs market in August.

This has increased the probability of interest rate cuts from the Federal Reserve. Most analysts are still prepared for a 0.25% rate-cut later this month. The dollar index was on track for a 0.6% loss for the week, its sharpest drop over the last month. Earlier losses have mostly been attributed to trade tensions with China

Elsewhere, the safe-haven currencies were in less demand considering a no-deal Brexit being temporarily blocked and Hong Kong leader Carrie Lam withdrawing the Extradition Bill that had sparked months of violent protests. The Japanese yen was up 0.05% up against the dollar and 0.11% up against the euro. Riskier currencies like the Australian dollar were up 0.49% and off-shore Chinese yuan was up 0.5% against the US dollar.

EURUSD opened at 1.1049 and fell sharply in the morning to a low of 1.1022. This was followed by a sharp jump and then slow decline in the afternoon to finish at 1.1038

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