Sterling awaits PM May speech, Dollar rally stalls after Fed meeting

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22 September 2017

Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

Sterling steadied itself against the US Dollar during London trading yesterday as investors awaited a major Brexit speech from Prime Minister Theresa May in Florence on Friday afternoon.

ust after 14:00 UK time, May will be using her speech to deliver what she hopes will break the deadlock over negotiations with the European Union. The Prime Minister is expected to propose a transitory deal with the EU, potentially worth 20 billion Euros over a two year period. It is hoped that such a deal could speed up the Brexit negotiations, the impact of which we think would be unambiguously positive for the Pound.

The currency is already trading around its highest level since the Brexit vote against the Dollar following last week’s hawkish Bank of England meeting. Any indication that May is taking a softer stance towards negotiations could give additional impetus for the currency to stage another rally against its major peers.

US Dollar fades as North Korea tensions build

The rally in the US Dollar following a hawkish monetary policy statement from the Federal Reserve stalled on Thursday, with the currency losing much of the ground it gained. Communications out of North Korea this morning did little to help the greenback with Foreign Minister Ri Yong Ho claiming he believed the country would consider a hydrogen bomb test on the Pacific Ocean.

On the economic data front, the latest news out of the US jobs market yesterday continued to point to a tightening in labour market conditions that would warrant higher interest rates from the Federal Reserve. Initial jobless claims came in much stronger than expected last week, brushing aside the disruption caused by both Hurricane Harvey and Irma. Claims fell back to 259,000, having spiked to 282,000 a week previous. On Wednesday, the Fed appeared unconcerned about the impact on the US economy from the recent bad weather. Historically, hurricanes in the US have generally had little impact on overall growth and we expect activity in the second half of the year to be broadly unaffected.

Eurozone PMIs jump, BoJ holds policy steady

Having remained mostly range bound on Thursday, the Euro rose back toward the 1.20 mark against the US Dollar this morning after the latest business activity PMIs gave further reason to be optimistic about the state of the Eurozone economy. The preliminary composite index, which measures activity in both the services and manufacturing sectors, jumped to 56.7 in September from 55.7. This will be very welcome news to the more bullish members of the European Central Bank.

Elsewhere, the Japanese Yen remained stuck just above the 112 mark against the US Dollar yesterday after the Bank of Japan kept its monetary policy unchanged. The central bank essentially reiterated its easy monetary policy stance, although failed to hint that additional stimulus was on the way.