Sterling took another leg higher yesterday as more positive headlines regarding a last-minute deal hit traders’ news feeds. Sterling rallied 1.5% against the US dollar which was notably the largest positive move in currency markets globally yesterday. There remains a substantial amount of hurdles until a deal is secured. Getting a deal rubber-stamped domestically proved to be Theresa May’s downfall, and reports last night didn’t look overly convincing with respect to the DUPs support. Johnson’s administration stands further away from the majority mark, at more than 40 MPs, meaning DUP support is pivotal. The Financial Times writes that the deal will likely involve a border in the Irish sea and for that the DUPs support would be contingent on a cash injection. “This would need to be a big package,” said one person close to talks. There is still much ambiguity regarding the type of deal that is being negotiated between the UK and EU and how far both parties are from finalising the agreement. Number 10 sources are currently downplaying the prospect of a deal in the coming days, requiring Johnson to seek a short extension to the October deadline in order to iron out the details. Further clarity should come today, with EU negotiator Michel Barnier set to brief ambassadors at around 13:00 BST this afternoon while Johnson holds a cabinet meeting at around 16:00. After which, the PM is due to speak to backbench Tory MPs at the 1922 committee meeting this evening at 19:30 BST.


The euro has spiked this morning, after some volatility overnight that saw the single currency dip lower before recovering. This morning’s rally looks to have been triggered by reports from Bloomberg that Angela Merkel’s CDU caucus may be willing to relax its previous commitment to fiscal surplus, the famed (or infamous depending on who you ask) “schwarze null” or black zero. This development would be reserved for a response to a serious contraction in the economy. Bloomberg’s story was based on two anonymous sources but is consistent with recent statements from Angela Merkel who warned against an obsession with balanced budgets. This morning’s data will include Consumer Price Index inflation at 10:00 BST, accompanied by the Euro-Zone’s trade balance. Bundesbank head Jens Weidmann will speak today in New York at 18:00.


The greenback is mixed this morning, trading higher overnight against sterling, NOK, AUD, and CAD, but slightly lower against a handful of haven currencies. Yesterday’s optimism on US-China trade talks has moderated somewhat after China’s Foreign Ministry warned the US legislature against passing any measures supporting Hong Kong’s pro-democracy protests. The US data calendar heats up today, with Retail Sales data released at 13:30 BST, followed by a speech from voting FOMC member Charles Evans at 14:00. Business Inventories and the NAHB Housing Market Index will follow at 15:00, and the Federal Reserve’s Beige Book report on regional economic conditions at 19:00.


The loonie has been trading in a tight range this week, fluctuating in a 0.27% range thus far. Yesterday the USDCAD traded back down to Monday’s open as it benefitted from positive global tailwinds. Today, the loonie is retracing somewhat, but all could change following today’s CPI inflation release at 13:30 BST.



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