The single European currency and the pound rehearsed a separate life, and they behaved in completely different ways. The peppy and cheerful growth of the pound caused by the new statements of Boris Johnson regarding Brexit is especially notable. Having carefully listened to the words of Merkel and Macron about the thirty-day period, the UK should have time to propose amendments to the repeatedly proposed version of the agreement. However, without changing the essence of the agreement itself, as well as without introducing a trade and economic part into it, the Prime Minister of the United Kingdom made an extremely unexpected statement. In fact, Boris Johnson refused all of his campaign statements and said that in no case should the border controls be established on the border between Ireland and Northern Ireland. Translating to layman's term, this means that after Brexit, which is scheduled for October 31, the UK will continue to remain within the framework of a single European market and the rules of which are written in Brussels. According to Brexit supporters, this deprived the United Kingdom of economic sovereignty but while London was a member of the European Union, it could at least somehow influence the development of decisions on this issue. After October 31, the UK will no longer have this option. However, if the border dividing the Emerald Isle remains still as transparent, then London will continue to obey the same notorious trade rules and regulations that Brexit's supporters, to which the current British Prime Minister, are so displeased. Thus, Boris Johnson clearly showed us how politicians can sharply change their minds after being elected to the post they are interested in. However, such a statement was received with enviable optimism, as to some extent reduces the risk of unregulated Brexit. In fact, a sharp economic gap will not occur, which means that the risks of financial losses are significantly reduced and it is for the UK, at least for the first time. Well, there, you see, London and Brussels will still be able to work out some version of the economic component of the divorce agreement. Although, Europe itself does not show interest in this part of the agenda. In other words, the growth of the pound is caused by commonplace emotions, which will soon settle down, and common sense will prevail. It's not yet clear how the House of Commons will react to this, which has repeatedly rejected such scenarios.
Another thing is the behavior of the single European currency. At first, she showed some signs of life, rejoicing at unexpectedly good preliminary data on business activity indices. Instead of falling, they all showed steady growth. Thus, the index of business activity in the services sector grew from 53.2 to 53.4, and in the manufacturing sector from 46.5 to 47.0. As a result, the composite index grew from 51.5 to 51.8. True, the manufacturing index continues to remain below 50.0 points, which indicates the continuing risks of a recession. Before, he also sometimes showed growth, but only for short periods of time. And then, it went down again. This is precisely what did not allow the single European currency to develop success. Well, when the text of the minutes of the meeting of the Board of the European Central Bank was published, in which everyone again saw the arguments of the regulator on the topic of options for easing monetary policy. There were no reasons for the growth of the Euro at all.
The dynamics of the index of business activity in the manufacturing sector of the eurozone:
But in the United States, where they did not expect a total decrease in all indicators from preliminary data on business activity indices, they did. For example, the index of business activity in the service sector, which, although it was supposed to decrease from 53.0 to 52.8, fell as much as 50.9. The index of business activity in the manufacturing sector was expected to grow from 50.4 to 50.5 but tragically fell to 49.9. Similarly, in Europe, it dropped below 50.0. That is, he hints at the risk of sliding into recession and of course, all of these led the composite index of business activity to drop from 52.6 to 50.9 rather than 51.7. Although all of these were supposed to lead to a clear decrease in the dollar, the contents of the protocol did support the European Central Bank. Moreover, investors were encouraged by the data on unemployment claims, which fell by 66,000. In particular, the number of primary applications for unemployment benefits has fallen by 12,000, and the number of re-applications by 54,000.
The dynamics of the index of business activity in the manufacturing sector of the United States:
In today's context, only data on new home sales in the United States are published from macroeconomic data, which could fall by 0.2%. However, this will not affect the market in any way and not only due to the fact that these same sales grew by 7.0% in the previous month, but also because of the expected performance of Jerome Powell. Many media have tried to portray it as a fateful speech, in which the head of the Federal Reserve must make a number of loud statements. However, the meaning of Jerome Powell's speech is unlikely to be much different from that of the minutes of the Federal Open Market Committee meeting. In any case, the head of the Federal Reserve System will carefully avoid direct references to the plans of the regulator regarding the size of the refinancing rate. Such thoughts are indicated by all previous speeches of Jerome Powell, during which he never directly said anything about changing the level of the refinancing rate. In other words, investors will continue to proceed from the results of the last meeting of the Federal Committee on Open Market Operations.
The dynamics of the refinancing rate of the Federal Reserve System:
If we talk about the single European currency, nothing has changed in principle. The European Central Bank continues to look for ways to covertly soften monetary policy, and the Federal Reserve is clearly not going to follow the exciting public and make hasty decisions. Hence, the single European currency will continue its dull downward movement and end the week at 1.1050.
Yesterday's buyers of the pound will gradually realize the depths of the United Kingdom Boris Johnson and we will see a rebound from yesterday's highs. As a result, the pound will finish the week at 1.2175.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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