IFX Market Report: Wednesday 9th October 2019

The pound fell to a one month low yesterday as it looks like negotiations between the UK and EU are breaking down, with Angela Merkel describing a deal at this point as “overwhelmingly unlikely”. The pound fell 0.7% against the dollar and euro. The fears that Britain will leave without a withdrawal agreement have crept back in.

Analysts believe that these initial market reactions to the negative headlines will soon move on to more considered positions on an extension and subsequent general election. Prime Minister Boris Johnson has continued to repeat his pledge that the UK will leave the EU at the end of October, regardless of whether a withdrawal agreement is made. Economic data has repeatedly highlighted the potential economic damage of a no-deal exit, including a recent report by the Institute of Fiscal Studies saying it could double the UK’s deficit to around £100bn.

GBPUSD opened at 1.2284 and declined steadily across the day, closing at a low of 1.2213

GBPEUR opened at 1.1188 but had already begun a sharp decline to reach a midday low of 1.1120. The pair recovered only slightly to close at 1.1153

The dollar came under pressure after the US State Department imposed restrictions on Chinese government officials who it believes are responsible for detentions or abuse of Muslim minorities. This follows Monday’s actions of blacklisting Chinese companies for Beijing’s treatment of these minorities. The dollar fell 0.18% against the Japanese yen as Donald Trump said a quick trade deal was unlikely.

Against a basket of six currencies, the greenback was 0.15% higher after Federal Reserve Chairman Jerome Powell did not commit to further rate cuts. An October rate-cut is still a possibility but nowhere near guaranteed at this point.

EURUSD opened at 1.0979 and climbed to a morning high of 1.0993 before dropping sharply to a late afternoon low of 1.0948 and closing at 1.0951

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