GBP optimism unlikely to last

Sterling strength has led the FTSE lower, with a second offer being made to the Irish in a bid to unlock trade talks. Unfortunately, with a host of parties to appease, an easy solution seems out of reach.

• FTSE weakens, while Bitcoin pushes on
• Brexit uncertainty heightens as EU sets Irish border deadline
• US rates likely to rise amid tax reforms

The FTSE has suffered at the hands of a strengthening pound and weak session for insurance firms and miners. While many markets have been seen somewhat of a serene session, the same cannot be said for Bitcoin which seems to go from strength to strength amid the rise to $16,000. Incredibly this rally seems to know no bounds, with the news of a massive hack totaling over $64 million batted off in favour of new record highs.

Brexit uncertainty has proven a drag on the pound of late, with Monday’s expected Irish border deal failing to materialise, dragging the pound to a week low earlier today. However, with Theresa May expected to present another deal to the Irish, market hopes have pushed the pound higher this afternoon. Unfortunately, as Monday highlighted, the ability of Theresa May to appease all sides with a deal is going to be a tough ask, with the DUP’s opposition likely to prove a stumbling block. With the EU setting a 72-hour deadline on the provision of a suitable offer, there is a strong chance that we could see the commencement of trade negotiations pushed back into 2018.

Today has been somewhat of a lull, with markets positioning themselves ahead of tomorrow’s key US jobs report. With Janet Yellen almost certain to leave her office in February, there is a high likeliness that the governor will wants to fulfill the FOMC’s three rate rises as set out a year ago. Given the high likeliness of a wide sweeping US tax reform, the emphasis is shifting away from the Fed, bringing less pressure to maintain rock bottom interest rates for much longer.