• Brexit continues to set Sterling's fortunes as new proposals released
  • European economic performance still faltering
  • Performance across the Pond mixed but US Dollar stable

Brexit continues to set Sterling’s fortunes as new proposals released

Politics continues to dominate the currency markets and the big factors for the Pound right now are Boris Johnson and Brexit. The major news in this saga this afternoon centres around the new Brexit proposals from UK Prime Minister, Boris Johnson, to EU President Jean-Claude Juncker. The proposals include a suggested replacement for the Irish backstop that would keep Northern Ireland in a form of single market status, referred to as an “all-island regulatory zone”. It would mean additional customs checks on goods coming from the UK into Northern Ireland but not for those moving from Northern Ireland to the Republic of Ireland.
 
More Brexit uncertainty is the focus for the Pound against its currency pairs, and the initial reaction has not been positive for the Pound, falling against its major currency counterpart the US Dollar today as the outlook remains unclear.
 
While Juncker says he will review the proposals “objectively”, there is still a way to go to reach a deal. Initial responses from members of the EU such as Germany’s Angela Merkel say that they will review the proposals collectively as EU Member States. The new proposals will need to be agreed by Northern Ireland’s parliament. Boris Johnson has said that it is a case of these new proposals or no deal, despite the law being passed in September that says the Prime Minister will need to seek an extension to the UK’s exit from the EU if he does not get the backing of members of parliament by 19th October. That does not leave long for anyone involved to consider and vote on the proposals and the lack of assurances of a Brexit deal is making markets nervous. Watch this space for market reaction and exchange rate movement.

European economic performance still faltering

Meanwhile, in Europe, the latest employment figures remain stable, but manufacturing and industry figures have been disappointing, coming in below expectations across a number of data releases. The Euro fell against the US Dollar and looks set to continue on that trajectory. We watch with interest to see how the latest Brexit news affects the GBPEUR currency pairing.

Performance across the Pond mixed but US Dollar stable

While the UK manufacturing sector contraction was less than expected in the latest Purchasing Managers’ Index (PMI), the figure has still fallen below the growth mark of 50.0 to 48.3, falling for the fifth month in a row. Conversely, the US figures came in lower than anticipated, although the US Dollar seems stable currently and the US economy still seems to be strong, despite economic concerns that have come across in various Federal Reserve speeches and monetary policy reviews. The US releases their employment data on Friday and this will provide more context for the US Dollar and the economy.

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