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Weekly Report 28th Oct – 1st Nov

GBP

Sterling continues to be held hostage to Brexit headlines and despite not experiencing the roller coaster 5% gains from the week before, it still chalked up a 2% range versus the Greenback and 1.5% against the Euro. Macroeconomic headlines are still playing second fiddle to the political situation and this theme is set to rumble on as expectations the EU will approve an extension until January 2020 is imminent. A 3-month extension may provide GBP with short term relief as it removes the immediate threat of a ‘no deal’, however the can be kicked down the road for only so much longer.

To reach Brexit endgame, Johnson is pushing for a December election to break the deadlock in Parliament and push his agenda through the commons. Resistance will be found in Labour’s reluctance to back an election, and more importantly that even if an election is ratified, according to the polls it appears unlikely the Conservatives will gain a majority. Therefore, largely speaking we remain in the same position.
USD
The Federal Reserve is set to cut interest rates by 25bps on Wednesday to 1.75% from 2%. Mixed economic figures of late and weighing trade uncertainty will likely be part of any justification confirmed by Jerome Powell. The accompanying statement by FED Chair Powell is of equal, if not more important than the actual monetary decision as it communicates the expected path the Federal reserve will charter the coming months. Sceptics may argue that if the FED signals further easing, they are bowing to pressure from Donald Trump who has repeatedly made it clear his desire for lower borrowing costs. The prelude to the rate decision will come hours before in the form of US GDP which is expected to show a slowdown in the third quarter from 2% to 1.6%. Should the actual number deviate significantly from the forecast then the USD may react accordingly.


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