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Crucial Brexit summit expected to disappoint

By Jake Trask

Today sees the latest meeting between EU leaders in Brussels today with the chances we will get an agreement over a future trading arrangement between the bloc and the UK looking slim at best. As recently as last week it was looking like todays get-together was going to provide the breakthrough needed to enable a severance deal to be confirmed at a specially arranged summit next month. EU chief negotiator stated last week that a deal was “80-85% done” however how to avoid a hard Irish border has once again been the sticking point between the two sides. Market expectations are that there will be a deal however it’s looking more likely it will drag on until December to be sorted. Away from Brexit, there was positive data from the UK as wages were seen to rise at their fastest pace in nearly 10 years. Office for National Statistics data showed that in the three months to August wages rose at 3.1% y/y with wages including bonuses increasing 2.7% both above the 2.5% level of inflation for the same period. GBP/USD pushed through 1.32 on the news however ran out of steam around 1.3230 as Brexit concerns rapidly returned to investors’ minds. Today sees UK CPI with a slight fall to 2.6% expected. GBP/USD currently trades at 1.3170.

US President, Donald Trump has again taken aim at the Fed stating the central bank is the biggest threat to the US economy. Second quarter growth from the States was shown to be 4.2% however Trump is concerned the Feds tightening cycle will stifle the economic purple patch currently being seen. The comments made via Trumps favoured broadcaster, Fox, stated the President was “not happy with what he’s (Fed Chairman, Jerome Powell) doing.” The usual script for US Presidents, like most leaders around the world is that they don’t overly criticise central bank policy however Trump has repeatedly broken with that tradition over recent weeks. EUR/USD seemed to wobble a little on the news however not as much as some may have thought. It currently trades at 1.1560 ahead of this evenings FOMC meeting minutes which may cast some light on the path for interest rates for next year.

As mentioned earlier, this week’s main event from this side of the Atlantic is the EU summit in Brussels with Brexit expected to be the main area of focus. Aside from Brexit there is likely to be some discussion with regards to Italy’s controversial budget which has made the euro wobble over recent weeks. The spending plans submitted to the EU earlier this week are likely to be derided by critics as way too generous given Italy’s huge debt pile and anaemic economic growth seen throughout the last decade. There is little data due this week from the EZ so expect politics to be the main talking point. GBP/EUR is back down to 1.1370.

The Aussie wobbled earlier this week as the latest Reserve Bank of Australia minutes from its last policy meeting reiterated that a rate hike is way off. It highlighted the recent weakness in the Aussie was supportive to the economy and that some pressure was being removed to raise rates by house prices in Sydney and Melbourne recently falling. AUD/USD fell around 25 pips on the release however the losses have since been pared over the past 24 hours as some dollar weakness returned to the markets. GBP/AUD is at 1.8390

USD/CAD has fallen below 1.30 over the past 24 hours as some dollar weakness permeated the markets. Brent Crude remains above $80b with Fridays CPI and Retail Sales numbers due to be this week’s main event. GBP/CAD sits at 1.7030.

New Zealand’s sharp jump in quarterly inflation seen on Monday night as given continued support to the Kiwi with NZD/USD threatening to push through .66 at present. GBP/NZD is at 1.9950.