Last Week
GBP:

• G7 summit saw Boris Johnson more optimistic about a potential agreement with the EU.
• The Pound railed after Jeremy Corbyn’s talks with opposition about legislation to prevent a no-deal Brexit and an extension of the current deadline.
• The Queen gave the green light to Boris Johnson for Parliament suspension, causing Sterling’s gains to be reversed.
• Parliament suspension saw Sterling jump to its highest level since December 2018.

USD

• Trade tensions continue to escalate between the US and China. Both nations want to raise tariffs against each other which saw the dollar fall.
• The Dollar recovered later during the week when both parties spoke about the ongoing trade situation hoping for more favourable conditions.
• On Friday, Trump confirmed that a meeting on trade between the US and China is still scheduled for September.

Week Ahead
GBP:

• Inflation report hearings
• MPs return to parliament and are looking to put forward a legislation to prevent a no-deal Brexit

USD

• Manufacturing PMI
• Average hourly earnings m/m
• Non-farm employment change
• Unemployment rate
• FED Chair Powell Speaks

GBP

The GBP was the best performing currency yesterday as comments from European Commission president, Jean-Claude Juncker, suggest a notable shift in the EU position on Brexit.

Juncker struck an optimistic tone, stating that he was doing "everything to get a deal" and that he did not have "an erotic relation" to the Northern Ireland backstop. Juncker went a step further by stating that he was prepared to remove the backstop from the Withdrawal Agreement so long as the "alternative arrangements meet the main objectives of the backstop."

The Bank of England said Brexit uncertainty and slower world economic growth were increasingly causing Britain’s economy to perform below its potential, and that a failure to reach a deal to leave the European Union by October 31st would worsen the problem.

All nine members of the BoE’s Monetary Policy Committee voted to keep rates on hold at 0.75% and reiterated their warnings that a no-deal Brexit risked hitting Sterling and damaging growth.

Policy minutes, for the first time, gave an explicit warning about the impact of a further Brexit delay, saying “entrenched uncertainty” about the terms on which Britain would leave the EU would also cause harm, albeit on a smaller scale.

Prime Minister, Boris Johnson, has vowed to take Britain out of the EU by October 31st, without a transition deal if necessary. However, Parliament has ordered him to delay departure if he cannot broker a fresh agreement with the EU that Parliament also backs.

Almost no economists expect the BoE to raise interest rates unless Britain leaves the EU in an orderly way. However, unlike the U.S. Federal Reserve and the European Central Bank, the BoE says it wants to raise rates gradually over the medium term, as long as a no-deal Brexit shock to the economy is avoided and global growth perks up a bit.

In the event of a no-deal Brexit, policymakers repeated their view that all policy options would be open, depending on the damage to growth and how much inflation spikes from a likely fall in Sterling. BoE Governor, Mark Carney, who is due to step down on January 31st has said his personal view is that the BoE is more likely to need to cut rates after a no-deal Brexit.

Key Announcements

None

USD

The US Central Bank has cut interest rates for only the second time since 2008, due to concerns over slowing global growth and trade tensions. As expected, the Federal Reserve lowered the target range for its key interest rate by 25 basis points to between 1.75% and 2%. The bank said the cut is aimed at shoring up the US economy, amid "uncertainties" about future growth.

President Trump reacted by attacking Fed Chairman, Jerome Powell, for lacking "guts." Mr Trump has repeatedly criticised the Fed for cutting rates too slowly.

GBP

Boris Johnson has been set a two week deadline to outline his Brexit plans to the EU, according to Finland’s Prime Minster. The Finnish Prime Minster, Antti Rinne, said that he and the French President, Emmanuel Macron, agreed that the UK needed to produce the proposals in writing by the end of September. He said that if this is not achieved, "then it's over."

A spokesman for Downing Street told reports that the UK will continue to negotiate and put forward proposals at the appropriate time. Mr Johnson has said that a deal is possible at a crucial summit of EU leaders on 17th October, but he has insisted Brexit will happen by the 31st October deadline, even if a deal is not agreed. Lastly, the UK government have said that talks with the EU have made progress since Johnson took over from May, but Johnson has since refused to give anything away.

Key Announcements

09:30 - GBP: Retail sales m/m - Forecast at -0.2% from previous 0.2%.
12:30 - GBP: MPC Official bank rate votes - Unchanged at 0-0-9.
12:30 - GBP: Monetary Policy summary.
12:30 - GBP: Offical bank rate - Unchanged at 0.75%.

Last Week
GBP:

• GDP increased by 0.3%.
• Scottish Court deems Parliament proroguing unlawful.
• Reports of DUP compromise.
• The Pound appreciated by over 4%.

EUR:

• ECB cut its deposit rate to a record low of -0.5%.
• Restart of bond purchasing programme of 20 billion Euros in November.
• Interest rate remained unchanged at zero.

Week Ahead
GBP:

• Bank of England minutes.
• Bank of England interest rate decision - expected to remain at 0.75%.

EUR:

• German ZEW Survey,Economic Sentiment - expected to increase to -38.0 from 44.1.

USD:

• FOMC Monetary Policy Statement.
• Fed interest rate decision - expected to fall to 2% from 2.25%.

GBP

The Pound retreated from six-week highs against the Dollar on Tuesday as Prime Minister, Boris Johnson, stuck to his pledge to take Britain out of the European Union by October 31st, vowing not to seek an extension to the deadline. The PM is required by a law passed this month to ask the EU for a three-month delay to Brexit if a deal is not approved by October 19th, but British media reports say his team are looking at ways to circumvent it. With less than seven weeks until the Brexit deadline, Johnson is hoping a Brexit deal can be clinched at an EU summit on October 17-18th.

Sterling is also being buffeted by the volatile Dollar, which rose late on Monday as oil prices eased and trade tensions with Japan appeared to cool. The greenback inched to a five-day high against a basket of currencies ahead of the U.S. Federal Reserve’s policy meeting this week.

Key Announcements

09:30 – GBP: Consumer Pricing Index expected to fall to 1.8%.
19:00 – USD: FOMC Economic Projections.
19:00 – USD: FOMC Statement.
19:00 – USD: Federal Funds Rate expected to be cut to 2.00%.
19:30 – USD: FOMC Press Conference.