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The UK-EU trade negotiations once again took centre stage with the Prime Minister throwing down the gauntlet to the EU challenging Brussels to fundamentally change its positions.

Historically most EU negotiations rely on last-minute breakthroughs and most commentators still hold hope this could happen again to enable a deal with the UK. Markets have therefore generally taken the view that the strong rhetoric from both sides is largely posturing and brinkmanship.

Steady week for the pound

Conciliatory comments from various EU leaders over the weekend have seen the pound remain steady in value, despite the Prime Minister’s ultimatum on Friday.

It closed the week slightly lower than it opened against the US dollar at $1.29 but finished higher against the euro at €1.105.

US Dollar gains via ‘safe haven’ status

Disappointing economic figures around the world suggested the recovery of developed economies from the impact of the coronavirus pandemic may be slowing.

Equity markets struggled as a result, leading to an increase in US dollar ‘safe haven’ demand.

The US Dollar Index (DXY) opened this week above the 93 mark at 93.7 having risen as high as 93.9.

China growth boosts stock markets

Stock markets have been boosted by fresh data from China indicating it has recovered from its own Covid-induced slump in Q1.

With China's GDP expanding by 4.9% in Q3, the country has become the first major economy to markedly recover from the pandemic's economic effects and is on course to record overall growth for 2020.

Oil benefits

Oil had been steadily priced between US$39.1 and $41.3 over the course of last week, but the positive news from China has seen its value rise towards $42.

Mixed fortunes for metals

Gold continues to consolidate near to the US$1,900 per ounce level.

Short-term profit-taking saw silver fall in value from above US$25 to as low as $23.7 before recovering to the mid-24s on opening this week.

Week ahead

FX markets are likely to take their lead from equity markets over the coming week. There will, however, be important economic releases from the UK, such as the ONS consumer price inflation report on Wednesday and preliminary PMI’s on Friday.

Various central bank leaders in the UK, EU and US are due to speak and speculators will be listening in closely for further monetary policy measures to support the economic recovery from Covid-19.

There has been fervent speculation that the Bank of England (BOE) may reduce interest rates into negative territory, which could dent the value of the pound.

Further developments around the UK-EU trade talks and the US presidential election will also draw plenty of attention and could spark some volatility in the markets.

Economic Data

Highlights this week include:

Today (19 October)     

  • Speeches from:
    • European Central Bank’s (ECB) De Guindos, Mersch, Lane and President Lagarde
    • BOE’s Cunliffe
    • Federal Reserve (FED) Chair Powell
Tuesday      
  • Speeches from:
    • UK Monetary Policy Committee (MPC) member Vlieghe
    • FOMC (Federal Open Market Committee) members Williams and Quarles
  • API Weekly crude oil stocks

Wednesday    

  • ONS consumer price inflation report for September
  • Speeches from:
    • MPC’s Ramsden
    • ECB’s Lane, Lagarde and De Guindos
    • FOMC’s Brainard and Mester
  • US Crude oil inventories and the ‘Beige book’ – the report on the US economy from the Fed

Thursday    

  • ONS’ UK retail sales report and CBI industrial trends report
  • German Gfk Consumer Climate report
  • US weekly initial and continuing jobless claims numbers
  • Speeches from:
    • BOE’s Haldane and Governor Bailey
    • ECB’s Panetta
    • FOMC’s Barkin and Kaplan

Friday     

  • UK Retail Sales data for September
  • Global preliminary October PMIs.
  • Speeches from:
    • Bundesbank’s Mauderer
    • UK MPC’s Ramsden