News of a Brexit Deal Creates Wild Swings; Dollar Generally Weaker

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News of a Brexit Deal Creates Wild Swings; Dollar Generally Weaker

OCTOBER 17, 2019

The U.S. dollar is under pressure across the board as events abroad lifted its rivals. The dollar’s overnight negative momentum was a continuation of yesterday’s weakness after poor retail sales and downgraded outlook in the Fed’s Beige Book.

Overview

Today’s economic docket is also not doing the greenback any favors.  Housing starts fell 9.4% in September and building permits also contracted.  The Philly Fed also disappointed, registering only at 5.6, missing estimates and considerably lower than the 12.0 reading last month.  Industrial production will cross the wire at 9:15 a.m.  There are also a number of Fed speakers scheduled for this afternoon.

What to Watch Today…

  • Industrial Production at 9:15 a.m.

Complete Economic Calendar can be found here.

AUD

Outside of the wild moves in GBP/USD, the Australian dollar was the biggest gainer versus the U.S. dollar overnight.  A report showed that Australian unemployment dropped to 5.2% in September v. expectations of 5.3%.  The strong jobs data lead traders to cut chances of another rate cut from the Reserve Bank of Australia.  Current chances of a rate cut next month fell to 20.0%, down from 40% yesterday.

GBP

The British pound rallied to a fresh 5-month high and over 6.0% stronger since this time last week overnight after the EU and the U.K. announced they came to draft agreement for a Brexit Deal.  However, the sterling has since given up all of its overnight gains (1.5%) as doubt set in that the package could pass through Parliament.  Northern Ireland’s Democratic Unionist Party said it could not support the deal and would vote against it.  The sticking point remains the border between Ireland and Northern Ireland.

The agreed upon deal will likely head to a vote in the U.K. parliament on Saturday.  While PM Johnson was speaking in Brussels, he faced another defeat in London.  MPs voted allow themselves multiple amendments to the government’s motion on Saturday, making Johnson’s path to Brexit trickier.  We have been in a similar situation in the not-so-distant past.  Former Prime Minister Theresa May also struck a deal with the E.U. only to face an historic defeat in the House of Commons.  Nevertheless, the likelihood of a “hard” Brexit has shrunk to next to zero, benefiting the sterling.

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