Ere Brexit’s Birthday

The UK Prime Minister May
Is seeking an outcome one day
Where Europe realizes
That some compromises
Are needed ere Brexit’s birthday

It has been a painfully quiet FX market overnight with very limited new information crossing the tapes. Lately, the biggest market moves have been seen in the Turkish lira, which after falling nearly 5% yesterday has rebounded just under 2% today. The thing is that Turkey’s importance in the broad scheme of the market is so marginal, it is tiresome to mention too frequently. And let’s face it; as long as President Erdogan is running things, this situation is unlikely to improve.

Arguably the only other noteworthy story overnight is the continued angst in the UK over International Trade Secretary, Liam Fox’s comments about the increasing probability of a hard Brexit. Certainly the analyst community all jumped on the bandwagon yesterday with regard to the discussion, but in the end, there is still precious little movement in the negotiations. There was a Bloomberg article this morning that was quite disconcerting, at least if you want to see a deal put in place. It basically hypothesized that PM May was counting on an increased willingness by the EU to compromise in order that the bloc may show a unified stance to President Trump at the G20 meeting scheduled for November in Buenos Aires. That seems pretty thin gruel for negotiating tactics and doesn’t sound like a winning play to me, but then I’m not a politician.

Reviewing the key issues outstanding, I still don’t see how the Irish border situation can be resolved effectively. Northern Ireland demands that there is no ‘hard’ border between themselves and Ireland, but as that will now be the only land border between the UK and the EU, something will be necessary to insure the proper movement of people and goods between nations. (Perhaps they can use the Shrodinger’s Cat model, where the border simultaneously does and doesn’t exist until someone looks to cross it.) In effect, one side is going to have to cave in, and right now, neither side is willing to do so. As long as this remains the case, I maintain that a hard Brexit is the most likely outcome and that the pound has further to fall.

But away from that, there is just not much to discuss. The dollar, overall, is slightly softer, giving back some of its recent gains, but that remains trading activity not news driven movement. Data has been sparse with soft German IP offset by ongoing strong trade data the most noteworthy Eurozone prints. The RBA left rates on hold, as universally expected, although perhaps the statement was seen as a bit more hawkish than anticipated as the Aussie dollar is actually today’s top performer in the G10, rising 0.6%. But after that, there is nothing to note.

And quite frankly, the only thing on the calendar this morning in the US is the JOLTs Jobs Report, which is simply going to show that the employment situation in the US remains quite strong. But we know that already and it was reconfirmed last Friday with the payroll report.

All told, it is shaping up to be an uninspiring day in the FX markets. Given we have seen some pretty steady strength in the dollar for the past week, I wouldn’t be surprised to see this morning’s mild weakness extend further. But I wouldn’t read any long-term thoughts into a day with low volumes where prices are correcting.

Good luck