IFX Market Report: Thursday 3rd October 2019

The pound rebounded on Wednesday from the lows it hit in early trading as investors awaited details of the government’s new Brexit deal, which involves leaving Northern Ireland within the EU’s single market. The pound had earlier fallen 0.5% against the dollar as markets were sceptical of any potential break-through that would lead to a deal between London and Brussels.

The implied volatility on the pound for one-month maturities has nearly doubled over the last three weeks as traders predicted large swings going forward. Some media reports have indicated that Boris Johnson’s latest proposals might gain support in parliament, including from the Democratic Unionist Party who opposed the previous deal. However, these proposals would also have to be agreed by the EU which looks unlikely based on initial reactions from some EU officials.

On Tuesday, analysts at JP Morgan raised the probability of an extension to the exit deadline at 85% from 60% and the probability of a no deal Brexit at 10% down from 25%.

GBPUSD opened at 1.2275 and fell to a low of 1.2230 before picking up across the rest of the day to close near a high of 1.2319

GBPEUR opened at 1.1242 and reached a low of 1.1208. The pair recovered slightly across the rest of the day, closing at 1.1229

The dollar hit a one-week low against the yen and the euro for the second consecutive day on the back of ongoing concerns of an economic slowdown. Concerns were exacerbated by data on Tuesday showing manufacturing activity had declined sharply. US payrolls report on private sector showed lower-than-expected job growth, suggesting the trade war is also affecting the labour market.

The dollar fell 0.6% against the yen, showing a demand for even safer assets. The dollar index was down 0.1%. The euro rose 0.3% against the dollar and elsewhere the Australian dollar was stable after having fallen to a ten-year low against its US rival following the Reserve Bank of Australia’s decision to cut rates to a record low on Tuesday.

EURUSD opened near a low of 1.0906 and rose sharply across the day to close at 1.0957

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