Pound jumps on reports of ‘very close’ Brexit agreement

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5 October 2018

thomasdodds

Sterling jumped to a ten day high against the Euro this morning, extending its gains from yesterday, on reports that a deal over Brexit could be imminent.

A
ccording to reports released this morning, EU negotiators believe that an agreement on the exit terms are ‘very close’. Both parties have been negotiating hard ahead of the 17-18th October EU summit, seen as the deadline for a divorce agreement to be reached. A few stumbling blocks remain, however, with the issue regarding how extensive border checks will be on the Irish border after Brexit presenting itself as a potential deal breaker. This morning’s news is therefore relatively encouraging, and could provide further impetus for additional rally in the Pound throughout Friday.

Currency traders will continue to pay close attention to Brexit headlines in the coming days. We think that the Pound will become increasingly volatile in the days leading up the EU summit later this month.

Currency traders eye another strong US payrolls report

With traders awaiting this afternoon’s nonfarm payrolls report, the US Dollar spent much of trading yesterday relatively range bound against the Euro. Following some very hawkish comments from Federal Reserve Chair Jerome Powell earlier this week, investors will be looking to the strength of this afternoon’s labour report for an indication as to whether a faster pace of interest rate hikes from the central bank is on the cards in the coming quarters. Economists have pencilled in a solid headline job creation number of around 185k, although if the recent ADP employment change number is anything to go by, we could see this surprise to the upside. As has been increasingly the case of late, the average hourly earnings number will be under the microscope, given its growing importance to Fed policy making.

The relatively limited move in the EUR/USD rate can also be attributed to a lack of any major economic data releases across either side of the Atlantic. German producer prices this morning came in modestly above expectations, although not materially enough to impact the currency markets. As far as news out of the Eurozone is concerned, we await next Thursday’s European Central Bank meeting accounts to provide the next clue as to the timing of the first interest rate hike out of the Euro-area.