Sterling struggled to get going yesterday despite Theresa May updating Parliament on Brexit “progress”. May’s statement was met with raucous laughter and rebutted by a riled up Jeremy Corbyn. Further pressure mounted on May as key figureheads in the Tory party met for a working dinner, consisting of pizza, to discuss Brexit strategy in Andrea Leadsom’s office. Although it is unclear what popular pizza chain they opted for, the meeting added to doubts about May’s popularity within her own party and her ability to drive Brexit negotiations. High profile Tory party officials such as Brexit Secretary Dominic Raab and Foreign Secretary Jeremy Hunt were among the 8 members at last night’s meeting. Today, May will gather her cabinet in an attempt to fudge an Irish border solution by including an opt-out clause to the “backstop” solution to quell prior fears over the indefinite nature of the UK’s access to the customs union after March. May previously rejected signing off on a solution struck by Olly Robbins and EU officials on Sunday over fears she would lose the faith of her own party due to the backstop solution not having a set end-date. The timeline remains tight though, as May will try to get the support of her party by Wednesday to discuss the new solution and Brexit developments at the EU Commission’s summit. The next 48 hours are therefore crucial for Brexit negotiations, which will likely overshadow the start of a week full of top-tier data for the pound. Nevertheless, this morning at 09:30 BST unemployment data for August is released.
The Italian budget made it to the European Commission before the deadline yesterday but failed to make the meteoric impact some thought it might. EURUSD continued to trade within a very tight trading range between noon and this morning, unmoved by the budget release. Not to be a killjoy, but this flat response of the euro was expected as the Italian government clearly communicated over the past weeks they would stick to their intentions of having a 2.4% deficit in 2019. What can be taken as news is that Italian Prime Minister Giuseppe Conte and Finance Minister Giovanni Tria attempted to appease the EC somewhat, by reiterating Italy honours the growth and stability pact and intends a “continued dialogue” with the European Union over the budget. Italian 10-year government bonds are not so convinced by these conciliatory tones yet and the yield spread with German bonds remains near 5-year highs.
USD bottomed the G10 currency pack together with GBP yesterday as tensions with Saudi Arabia rose and the US may have to add another country to its long list of countries which it has sanctioned, or has a trade dispute with. In a press interview yesterday, President Trump stated that he considered the Saudi King’s denial of knowledge of the disappearance of the Saudi Journalist Jamal Khashoggi very “firm”, although he stated earlier a “severe punishment” would follow if the Saudis are involved in the murder of Khashoggi. Economic data didn’t prove helpful either, as Core Retail Sales underwhelmed with a negative growth of 0.1% in September, while the August reading was also pared down a little bit.