Sterling pauses ahead of weekend vote on Brexit
Sterling was relatively unchanged as the market waited for the progress on Brexit. Today, Boris Johnson continued to rally his supporters on the deal he has proposed. This deal is very similar to what Theresa May had negotiated, but with a few changes. The deal replaces a backstop with a full stop, whereby Northern Ireland remains aligned to the European Union for at least four years. A change in this arrangement can only happen if it is voted on by the Stormont assembly. There will be no border checks between Northern Ireland and Ireland also. They will also avoid customs checks at the ports and airports in Northern Ireland. The two parties will then negotiate a trading agreement with the aim of reducing tariffs to zero. Also, EU law on VAT will apply in Northern Ireland. This is because the EU was concerned that differences on VAT will create trade distortions. The UK house of commons will vote on the deal tomorrow.
Global markets were mixed today as traders reacted to weak economic data from China. Earlier today, China’s bureau of statistics reported that the economy expanded by 6.0% in the third quarter. This was the lowest growth rate in 27 years. It was still within the annual target range set by policymakers. Fixed asset investments declined to 5.4% from the previous 5.5% while industrial production rose to 5.8% from the previous 4.4%. Retail sales rose slightly to 7.8% while the unemployment rate remained unchanged at 7.8%. The slowdown in the economy was expected after recent data showed weakening in exports, manufacturing and industrial production.
The Japanese yen was relatively unmoved after the country released weak consumer price data. Numbers from the country declined to a two-and-a-half -year low, which is likely to increase pressure on the BOJ to ease monetary policy. Core inflation, which excludes volatile food and energy products was at 0.3%, which was the lowest level since April 2017. The core CPI, which removes energy prices declined to 0.5% from 0.6% in the previous month. The central bank has held off from slashing rates. Still, there are questions on whether more cuts will lead to higher rates towards the bank’s target of 2%. The country’s demographic changes have contributed to low inflation rate even with a low unemployment rate.
The EUR/USD pair remained at multi-week highs as optimism of Brexit increased. As of writing, the pair is trading at 1.1130, which is the highest level since August 27. On the four-hour chart, the pair’s price is above the 14-day and 28-day moving averages. The RSI remains above the overbought level of 70 while the signal and histogram of MACD have remained at the highest levels in months. The pair may continue staying in a holding pattern as the market waits for more information on Brexit.
The GBP/USD pair remained close to the weekly highs of 1.3000 as traders waited for more information on Brexit. The pair is now trading at 1.2895, which is still above the short and long-term moving averages. Volatility has increased as shown using the average true range and Bollinger Bands. The RSI has remained above the overbought level of 70. As with the EUR/USD pair, there is a likelihood that the pair will remain in a holding pattern as the market waits for more details.
The USD/JPY pair was unchanged today after Japan released its inflation numbers. The pair is trading at 108.63. On the hourly chart below, the pair has been moving in a sideways direction this week. As a result, the pair is trading along the short and medium-term moving averages. The RSI has remained along a neutral level of 50. The same is true with the momentum indicator. The pair may remain along this channel until the coming week.