- All eyes on the European Central Bank's meeting and the Brexit saga.
- Pound firmer on the past week’s developments have reduced the risk of a no-deal Brexit on 31 October.
EUR/GBP corrected last week having fallen from the 0.93 handle to just below 0.8950 as the pound attracts a turn-around bid whereby the markets figure, with respect to Brexit, that the proverbial can is being kicked down the road. EUR/GBP is currently trading at 0.8973 in the opening session as markets look ahead to the European Central Bank's meeting this month.
The ECB will be acting as president Draghi explained in his Sintra speech back in June and at the ECB meeting in July. Analysts at TD Securities explained that they are on the dovish side of expectations, looking for a 20bps rate cut and €40bn/month of QE. "We're fairly comfortable with our downside view on rates, though less certain on QE given the scale of push-back from some of the ECB hawks recently."
Will EU accept a new Brexit extension?
Meanwhile, on the Brexit front, turmoil has continued over the weekend with further resignations in Amber Rudd walking out as work and pensions secretary in protest against the expulsion of 21 conservative MPs. "We expect the UK will call a snap election early next week. This requires that Boris Johnson accepts Jeremy Corbyn’s request for the election to be held after 31 October and would imply an extension of the current Brexit deadline, assuming the EU accepts a new extension. The past week’s developments have reduced the risk of a no-deal Brexit on 31 October. However, I would still assign a substantial probability of a no-deal Brexit at a later stage, where the election result will be essential for the Brexit end game," Thomas Harr, Global Head of FI&C Research at Danske bank explained.
EUR/GBP is correcting from the recent swing lows around 0.8950 with the 0.90 handle on the radar. On the downside, the June 20 low at 0.8872 and the 200-day moving average guard the 61.8% Fibonacci retracement of the May-to-August advance down at 0.8794.