Sterling is marginally higher this morning after plunging 1.22% against the dollar last week. Over the weekend, one of the three major sovereign credit ratings agencies, Moody’s, downgraded the UK’s credit outlook to negative citing Brexit paralysis. While a downgrade in the outlook isn’t as detrimental as a credit rating downgrade in itself, it does hint that one is on the horizon in the next 6-12 months without a material improvement in economic and fiscal positions. Moody’s is the last to change their credit outlook, with Standard and Poor’s and Fitch already placing the UK on negative watch. In their report, Moody’s stated that the current paralysis in Brexit has undermined the credibility and predictability of the UK’s institutional framework, and they don’t believe the institutional strength will return once Brexit is solved. Despite this news breaking over the weekend, and the Bank of England weighing up an insurance rate cut in last week’s meeting, the pound has stabilised somewhat this morning and is currently trading 0.2% higher against the US dollar. In politics, the general election campaign enters week two. The polls currently show improvements for both major parties at the expense of the periphery parties, but with the Tories and Labour not expected to publish their manifesto for another week we expect politics will take the back seat for GBP again this week. Today, the data calendar includes construction, industrial production and manufacturing output data for September along with the preliminary reading of Q3 GDP.


The euro was one of the worst performing G10 currencies against a broadly stronger dollar last week, falling 1.33%. With all G10 currencies sitting in the red for the course of the last week, the euro’s performance wasn’t remarkably poor in comparison, but did show the distaste of investors towards the euro due to poor economic fundamentals and negative rates. Over the weekend, Spain took to the polls but the election has failed to break the country’s political impasse. Pedro Sanchez’s socialist party maintained their stronghold as the most popular party, but failed to receive a majority in the Chamber of Deputies. Achieving only 120 seats, 3 less than they achieved back in April’s election, Sanchez’s gamble didn’t pay off and the socialist party still needs to 55 seats from a coalition partner. Spanish bonds have held stead this morning, along with the euro. There is surprisingly no data in the calendar for the Eurozone.


After a strong week, the US dollar trades on the back foot this morning following comments from President Trump on Friday that has dampened optimism of a more substantial trade deal. It was initially suggested that the US was considering removing September’s 15% tariff on $125bn Chinese imports as a means of getting the phase one trade deal signed, which would have marked the first de-escalation of tariffs since the trade war began. Markets jubilantly traded on the idea of a phased rollback in tariffs last week, but Trump took to the press to state that his willingness to roll back tariffs was “incorrect”. The US president continued to state that the US would only sign the narrow trade deal if it was right for them, saying that China wants a deal “much more” than he does. US treasury markets are closed today for Veterans Day, with only limited action in futures markets. Given yields rose over the course of the last week as trade war optimism prompted traders to trim bets of Fed rate cuts in the foreseeable future, the resumption of US treasury trading tomorrow may put further downside pressure on the greenback. With little scheduled in the calendar for the dollar, the markets’ eyes will be firmly focused on the US-China headlines.


The loonie also lost out to the greenback last week, but less so in the early stages compared to its G10 counterparts as oil markets also rallied on positive US-China trade headlines. Demand concerns re-emerged in crude markets in the back-end of the week, however, and the US dollar resumed taking ground against the loonie as WTI prices slipped lower. This morning’s trading marks a continuation in last week’s trend with the loonie on the back foot as WTI prices slip even further. This time, negative trade headlines are tainting crude pricing, and with US treasury markets not open today, interest rate differentials still favour the US dollar.



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