IFX Market Report
Tuesday 26th September 2017

Market Report

The pound managed to shrug off news of Moody’s downgrade of the UK’s sovereign credit rating to Aa2 from Aa1 and remained poised on results of the Financial Policy Committee’s Statement.

The statement looks at potential risks faced to the UK financial system, runs stress tests and assesses the overall health of the economy. No surprises emerged and the general financial stability remained at a standard level.

GBPEUR capitalised on a slightly weaker euro following poor data and political uncertainty in Germany data to reach a 10-day high of 1.1394.

Initially GBPUSD consolidated after recent gains, opening at the high of the day of 1.3570 to gradually fall to 1.3479. A slight reversal was seen in the afternoon, capped at 1.3521 and the cross went on to close at 1.3454.

Little news came out of Brussels at the end of Day 1 in the 4th round of EU negotiations in the wake of Theresa May’s speech in Florence but she is meeting European Council President Donald Tusk later today.

Worldwide News

In Germany focus remained on the result of the General Election, which has been described as the worst possible outcome for political stability other than a Merkel defeat. Merkel is now being forced to look at forming a ‘Jamaican’ coalitional, a name given because of the colours of the 3 parties involved, black, yellow and green.

The German IFO Business Climate fell to 115.2 in September, the markets had expected the number to rise to 116 from 115.7 in August. The IFO Expectations and Current Assessment also both failed to meet expectations.

Policy members from both the Fed and ECB spoke yesterday. ECB President Draghi’s speech was largely in line with the ECB’s last press conference. He said the ECB have to be sensitive about not halting the recovery, and can’t afford hasty moves on monetary policy.

Fed members Dudley and Evans made conflicting comments, New York Federal Reserve President William Dudley said he felt the US economy’s fundamentals were sound sparking fresh hope of a rate hike by the end of the year.

Federal Reserve Bank of Chicago President Charles Evans said he felt inflation is too low at the moment and the Fed should wait until it rises towards the 2% goal before tightening monetary policy any further.

Tensions between North Korea and the US hit a new level yesterday as North Korea’s foreign minister says the US have declared war, stating they have every right to take countermeasures including shooting down US aircraft even if they are not in North Korean Airspace.

EURUSD fell throughout the day as the euro investors unwound their positions in the wake of the election uncertainty. The pair opened at 1.1910 and dropped through 2 levels of support to a low of 1.1842 at the close of the day. Overnight there have been further declines, EURUSD currently trades at 1.1816