Yesterday saw sterling extend its decline from Wednesday against the US dollar. With little news from Parliament, the pound followed general G10 moves and traded in a tight range. GBPUSD fell 0.23% over the course of the day as EU officials voiced their lack of confidence in Boris Johnson delivering a Brexit deal by October 31st. Officials stated that the lack of fresh ideas didn’t fill them with confidence. This morning, the pound resumes its general flight downwards. Comments from Bank of England member Saunders about the potential need for rate cuts even if there is a Brexit deal has done the damage this morning. The policymaker referenced heightened uncertainty in the UK economy as the basis for his argument, saying it may persist and drag on growth even with a Brexit deal. In turn, this could see growth undershoot the interest rate base case by 2.5%.


Expansive fiscal policies are starting to become apparent in the Eurozone as governments begin to submit their draft 2020 budgets prior to the October 15th deadline. Yesterday France presented their proposed budget to the EU, which included the tax cuts Emmanuel Macron promised the Yellow Vest protesters. The draft proposes a reduction in the lowest income tax rate from 14% to 11% while also increasing the state bonus given to low earners. The fiscal spending is expected to help the French economy grow by 1.4% this year and 1.3% in 2020. Given the significant downturn in economic data from the Eurozone this year, and with Germany likely to slip into a technical recession upon the release of their Q3 GDP data, the budget’s will be of great importance to the single currency. Markets are yet to hear proposals from the other major Eurozone economies but the tides of government spending are seemingly turning. This morning, French officials have urged Germany to follow its example with budget stimulus but the request may be harder to carry out than initially suggested due to the German law on fiscal austerity. This morning’s Eurozone data hasn’t helped the single currency as the bloc’s economic data continues to post negative surprises. This morning, inflation data from France and Germany has added to broad USD strength at the end of the quarter in pushing EURUSD to fresh 2-year lows. France’s CPI reading for September saw inflation fall from 1.3% to 1.1% YoY while import prices in Germany fell by 0.6% MoM. Inflation has been a worry for the ECB and adds to speculation that rates won’t begin to normalise any time soon.


The dollar remains well bid on the whole and is up against most of the G10 when compared to this morning’s open, yesterday’s open, and also on a weekly basis. US politics remained in a state of turmoil, with President Trump calling the whistle blower that triggered this week’s Ukraine controversy “close to a spy”. It remains difficult to judge what the effect of impeachment may end up being on the US dollar, but the progress of US/China talks seems to remain a key driver for the dollar. How the impeachment process affects trade negotiations may therefore be the most significant aspect of the whole story for markets. The New York Fed continued to provide liquidity to short term money markets in the form of both overnight and 14-day repurchase operations, with the later oversubscribed yesterday despite the Fed offering $60bn of liquidity. Today at 13:30 BST, Durable Goods data will be released alongside Personal Spending and Income.


The loonie has traded in a 0.55% range this week amidst a light data calendar. Given the fact that oil prices have fallen 5.1% over the course of this week, the loonie has held its ground relatively well. There is little on the data calendar for the loonie today, but the US dollar is on the front foot with end of quarter flows.