The pound had a rocky August as the October 31st Brexit deadline drew nearer and the ongoing drama of Brexit intensified. Prime Minister Boris Johnson rocked the pound by staying firm on the path to leave without a deal if nothing was agreed by the 31st October

GBP / USD Rates in September 2019

The global macroeconomic outlook continues to dampen and this has led to central banks becoming more vocal about the need to act in order to limit economic weakness. Brexit and trade tensions continue to cause a headache for the global outlook and tensions only increased in August. Euro area inflation and growth remained subdued, putting the ECB on the path to unleash stimulus in September. The Bank of England bemoaned the impact of Brexit on productivity and although their tone is more neutral than other central banks, we have definitely seen a more dovish lean.

GBP / EUR Rates in September 2019

The pound had a rocky August as the October 31st Brexit deadline drew nearer and the ongoing drama of Brexit intensified. Prime Minister Boris Johnson rocked the pound by staying firm on the path to leave without a deal if nothing was agreed by the 31st October. Later in the month the pound was supported by comments from German Chancellor Angela Merkel who was upbeat regarding a breakthrough in negotiations about the stubborn backstop issue. However, the month ended with the pound sliding as no real tangible progress had been made. We closed the month with the prospect of a dramatic reconvening of parliament as dividing lines sharpened.

EUR / USD Rates in September 2019

US-China trade tensions only increased in August as Donald Trump escalated the war of words and the tit for tat on tariffs continued. Any progress from the G20 now seems a long way behind us. Markets were hoping for an easing in the tensions which have rocked the global economy, especially against the backdrop of approaching US elections and weaker growth in China. The escalations drove safe haven currencies higher and pushed central banks towards more dovish policy measures.

What are the market themes for September?

Brexit Negotiations

As I write we reflect on Boris Johnson’s government losing key votes in the House of Commons, which will now lead to a Brexit delay to the end of Jan if a deal isn’t agreed by October 19th. Boris also failed in his push to get a snap election agreed as he did not achieve the two thirds majority required. The bill will need to go through the House of Lords, with the government likely to resist. This sets the stage for an election and the key question will be the timing of it. Boris is pushing for an October 15th date, ahead of the EU summit on 17-18th October. Jeremy Corbyn would like a later date beyond the 31st October. The election will be all about Brexit and the polling in the run up will be the key driver for the pound.

Central Bank

The global slowdown is really starting to get the attention of the central banks, with all major institutions turning more dovish. The European Central Bank have lined up to deliver a stimulus package in September as growth conditions force their hand and inflation still looks very benign. The Bank of England will be reactive to developments on Brexit but global
growth conditions will also lean towards easing ahead. The FOMC are expected to cut interest rates by a further 25 basis points in September as the cutting cycle continues. Another cut is expected by the end of the year.

US-China Trade War Impact

The road ahead will be longer than first thought and there are a number of difficult hurdles to leap to achieve a comprehensive deal. GDP slowed in both China and the US adding further fuel to get the deal done. In addition, the approaching US election adds pressure to get something over the line for Trump. However, the tensions have deepened recently and as it stands it looks more likely to escalate than to move towards a deal.