Losses of two thirds of a yen, a quarter of a Swiss cent and nearly one US cent pushed the euro into the back end of the field: only the Northern Scandinavian crowns, the pound and the South African rand had a worse run. The euro did nothing particularly wrong: most of the economic data from Germany and pan-Euroland beat forecast. It was just that investors’ attention was elsewhere. It was on the United States, where it continues to look likely that interest rates will go up in December. And it was on Britain, where the referendum result continues to cripple sterling.
The only ray of sunshine in the pound’s week was a suggestion that parliament would get a vote on the Brexit terms. That idea was quickly squashed when Brexit Minister, David Davis told parliament yes, they would get a say, but not a vote.
It was game on again for the sterling bears as the Brexit minister gave the impression that the government is still intent on pursuing what has become known as the “Hard Brexit”; an abrogation of all things EU, including the single market and free access for financial institutions. Their hand was strengthened by a story that the pound’s post-referendum decline is pushing up prices not only for imported goods but also for domestically-produced Marmite.
The US dollar was helped on its way by the minutes of last month’s Federal Open Market Committee meeting, which appeared to leave a December rate increase on the table.
Although only three of the FOMC’s ten members voted to increase interest rates in September, more of them felt they should not wait too long to pull the trigger. “Several members judged that it would be appropriate to increase the target range for the federal funds rate relatively soon…” The semanticists can argue about the exact meanings of “several” and “relatively soon” but investors reckon they mean “more than five” and “before Christmas”.
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