Sterling fell victim to a stronger dollar yesterday along with the usual bombardment of Brexit headlines. After losing the business motion vote on Tuesday night, which would have rushed Johnson’s Brexit deal through Parliament before October 31st, Johnson is looking induce a general election to break the Brexit “nightmare”. However, opposition leader Jeremy Corbyn has made his stance clear and will not support Johnson’s attempts to force a snap election under the Fixed Term Parliament Act until an extension has been secured with the EU. Speaking of, EU ambassadors will meet today at 09:00 BST in Brussels to discuss the extension, with France vocally objecting to the January 31st in favour of November 15th. Johnson said under a shorter extension, he would allow for greater legislative critique of his current Withdrawal Bill as a general election looks unfeasible with such a short extension. Corbyn reiterated last night that his party would back a general election, but only once no-deal was taken off of the table. He didn’t commit to explaining what this would require, stating “we’ll know tomorrow what the extension will be and I can answer that question tomorrow”. With the possibility of a parliamentary overhaul, a potentially different direction for Brexit, and further political uncertainty, sterling is continuing to trade in flux.
The euro sold-off yesterday afternoon after ECB President Mario Draghi issued a stark warning for his successor. Referencing slowing Eurozone growth, falling inflationary pressures, and prominent downside risks, Draghi told incoming President Lagarde to “never give up”. Bunds erased any gains after Draghi’s negative economic outlook for the currency bloc and the single currency came under pressure. This morning, investors will keep a close eye on the economic data released from the bloc following Draghi’s concerning press conference. Germany’s IFO survey, an indicator of growth momentum, will be watched at 09:00 BST for signs of stabilisation in growth after soft data suggested the German economy slipped into a technical recession in Q3.
The dollar was mixed overnight and yesterday, with some notable losses against the New Zealand dollar, but enough gains elsewhere to leave broad dollar indices such as DXY and the Bloomberg dollar index higher compared to the start of the week. US Vice President Mike Pence gave a speech about China in Washington, saying that the Trump administration was not seeking a decoupling of the US and Chinese economies. He did manage to include plenty of criticism for human rights in China and the complicity of several large US companies such as Nike. US data yesterday included a big miss for monthly Durable Goods Orders, which contracted 1.1% in September, but also some more upbeat Markit Purchasing Managers’ Indices. The Manufacturing PMI bucked the global trend of decline in manufacturing surveys to rise to 51.5 in October, indicating a modest rate of reported growth.
Catch me if you can. The loonie continues to rally, albeit at a slower pace over the last few days, but is the best performing G10 currency thus far this week. The data calendar is light for the loonie today, with no top-tier data due until next week’s Bank of Canada meeting on Wednesday and GDP release on Thursday. Meanwhile, crude oil markets look to have stabilised at the $56 mark after surging on Wednesday following a reduction in US inventories.