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Brexit Plan to be unveiled

GBP - British Pound

The onslaught of political chatter continued to dominate Sterling moves yesterday but the fundamental calendar does pick up as we progress through the working week. On the Brexit front, The Telegraph has reported that Boris Johnson will finally unveil his detailed plan for Brexit to EU leaders within the next 24 hours. The UK plan is expected to be based on the creation of an all-Ireland “economic zone” which would allow agricultural and food products to move between Ulster and the republic without checks at the border but a ‘soft border’ some kilometres away.

Boris, still at the centre of the ‘touching’ scandal causing a party division, was given some breathing space as the opposition decided against tabling a vote of no confidence, for now at least. The clock is ticking and with the extension request date on the 19th October nearing closer things are about to get even hotter as Bojo and his team try navigate their way to a withdrawal on 31st October.

Back to economic releases, the UK GDP second estimate showed that the economy contracted by 0.2% q/q in the second quarter of 2019, the same as that seen in the first readout while matching the consensus forecasts. Today we have the first round of PMIs with manufacturing coming at 9.30, a slight downturn is expected and still in contraction territory so pressure still firmly sitting on the Pound's shoulders.

The BOE reported last week a rate cut could happen regardless of what happens to the UK’s withdrawal, this has so far prevented the Pound going anywhere North. Cable dropped below the 1.23 handle where it still remains and GBP/EUR cannot break 1.13 but continues to test this level this morning.

Key Movers

EUR/USD fell to its lowest level since May 2017 yesterday as the Dollar retained its strength while disappointing German data weighed on the EUR. Weak German inflation figures have triggered the latest move. The European standard HICP inflation slowed down to 0.9%, below 1% expected. It joins disappointing Consumer Price Index numbers from France and Spain. The continent's largest economy has likely entered a recession. It contracted in the second quarter and data for the third quarter point to further weakness, especially in the manufacturing sector.

The Aussie was dragged lower overnight after the RBA cut rates from 1% to 0.75%. A move that was expected so no surprises but the rhetoric that followed gave the blow. The RBA delivered a dovish message, reiterating that an extended period of low-interest rates will be required opening the door for further cuts. This coupled with a duo of dismal Australian economic data released earlier this Tuesday - September manufacturing PMI and Building Permits for August - weighed on the domestic currency sending AUD/USD to 1 month lows of 0.67.

Expected Ranges

GBP/USD: 1.2240 - 1.2350 ▼

GBP/EUR: 1.1265 - 1.1365 ▲

GBP/AUD: 1.8280 - 1.8380 ▲

GBP/NZD: 1.9680 - 1.9780 ▲