Market Drivers October 4, 2016

Cable drops below 1.2800
RBA stays on hold
Nikkei 0.83% Dax 0.73%
Oil $48/bbl
Gold $1311/oz.

Europe and Asia:
AUD RBA on hold 1.5%
GBP UK Construction PMI 52.3 vs. 49.0

North America:
USD Consumer Confidence 10:00

Cable hit 31 year lows in early London trade today as the reality of Brexit negotiations continued to weigh on the pair.

UK PM Theresa May confirmed that her government intends to begin the process as early as March of next year, noting that it was important to set out timing of the Article 50 trigger in order to reassure UK businesses. Ms. May admitted that the process will not be “smooth sailing” for the economy but hoped that UK will strike a number of trading relationships and will maintain its special relationship with US.

There was nothing new in her remarks, but they only served to underscore the reality of the Brexit issue which has remained on the backburner for the past several weeks. Now that UK officials appear to be committed to a hard deadline the market is acting accordingly and taking cable to fresh multi-year lows as fears abound that the country will suffer from a protracted economic slowdown as a result of being disconnected from the European Union.

Some analysts have pointed out that even under the current schedule, UK would not properly exit the EU until 2019 at the earliest, but many investment decisions will be made well ahead of that date, the most important one having to do with the financial center. The most crucial question – whose answer is unknown at this time – is whether UK will remain the financial center of the world. If London can maintain its preeminence in capital markets finance than much of the economic pain from Brexit could be avoided. UK is primarily a services economy and it is the free flow of those services that will be much more important to its future rather than trade.

In other news the RBA remained stationary as expected keeping rates at 1.5% for the time being. The language of the statement was more subdued than expected as the central bank noted slowing growth in China and a mixed labor picture at home. The slightly dovish tone put a cap on AUD/USD trade with the pair dropping down to .7650 before finding some support.

In US today the only report on the docket is US Consumer Confidence at 14:00 GMT which is unlikely to move prices, but the dollar remains bid regardless, as yesterday positive ISM Manufacturing data boosted sentiment and increased expectations that labor reports later this week will confirm Fed’s rate hike target of December. USD/JPY has broken out above the 102.00 figure in Asian session trade today and is likely moving towards the key 103.00 level if the data continues to be supportive this week.

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