Swiss franc eases in risk-off
By Vincent-Frédéric Mivelaz
After hitting a 13-month last Friday, EUR/CHF rose 1% yesterday and continued to grind higher this morning amid improving risk sentiment. Brexit concerns eased after Michel Barnier, the European Union’s chief negotiator, said to expect a Brexit deal within the next 6-8 weeks. The pound surged 1.30 against the greenback, while GBP/CHF added 1.80% to 1.2740. Emerging currencies were better bid, while the Japanese yen, the Swiss franc and the US dollar slid, and the euro and high-quality commodity currencies extended gains.
Nevertheless, the ongoing trade war between the US and China will keep investors on their toes. US President Trump warned he was ready to roll out tariffs on $267 billion worth of Chinese exports to the US. For now, it seems that markets are too not worried.
Pound up on Brexit optimism
By Arnaud Masset
Brexit continues to grab attention: still unsolved are the customs union and the Irish border. A pound rally remains driven by talk, thus driving currency volatility higher. For now the trend is positive, with the pound bouncing back from its August low as the EU signalled an imminent deal, a change from prior discussions in July. Although the interpretation is that the EU is becoming more conciliatory, we see no real revelation. Indeed, the timetable for a deal is still 18 October 2018, period during which the EU will have to ratify the deal before official Brexit day on 29 March 2019.
We remain sceptical that current GBP relief will be sustainable, as both sides are likely to stick on important details. We also expect the Bank of England’s meeting this Thursday to be a non-event. The central bank already increased its bank rate 0.75% six weeks ago. Little has changed since then. GBP/USD currently trades at 1.3065, bouncing from its mid-August low, heading along 1.31 in the short-term.