07/09/2017 - Investors Prepare For European Union Repeal Bill

GBP

Sterling hit its highest in a month against the dollar on Wednesday, a day after its biggest rise in nearly two months, as investors trimmed some bearish bets before parliament discusses the European Union repeal bill.

Investors have doubled net speculative bets against the pound and in favour of the dollar in the past three weeks, bringing them to their highest since early May.

Analysts also wonder whether sterling’s slide against the euro, with some banks predicting parity within a year, will provoke more efforts by the Bank of England to talk the currency up.

Prime Minister Theresa May warned lawmakers over the weekend that Britain could be faced with a Brexit “cliff edge” if they failed to back the repeal bill, which will sever Britain’s ties with the bloc.

Finance minister Philip Hammond urged lawmakers on Monday not to seek to delay the legislation, which will copy existing EU legislation into domestic law, following reports that the opposition Labour Party is planning to propose several changes.

The BOE’s Michael Saunders reiterated last week that there was no particular level of the pound that worried the central bank, but further weakness would put more pressure on inflation already running above the bank’s 2 percent target.

EUR

German Finance Minister Wolfgang Schaeuble said there’s “no free lunch” in Brexit talks and that the reality of the divorce is sinking in among U.K. policy makers.

“Brexit was a decision that we think was wrong from every angle,” Schaeuble told a conference in Frankfurt by video link on Wednesday. “But the Britons made it and now we must try to find solutions that will keep the damage to both sides as limited as possible.”

Schaeuble’s comments were the latest warning by European leaders after a round of Brexit talks in Brussels last week ended with U.K. and European Union negotiators deadlocked over the divorce bill. The EU’s deputy Brexit envoy told German lawmakers this week she’s skeptical that talks on a post-Brexit trade deal can start in October.

While Schaeuble and Chancellor Angela Merkel have consistently said they regret the U.K.’s decision to leave the EU, they’ve made it clear that Germany’s focus is on keeping the rest of the EU united. 

Brexit has hardly figured in the German election campaign, where all polls show Merkel’s party bloc in the lead ahead of the vote on Sept. 24.

Key Announcements

12.45 – EUR – Minimum Bid Rate; Forecast not to change from 0%

13.30 – EUR- ECB Press Conference

13.30 – USD – Unemployment Claims; Forecast at 245K against previous of 236K

16.00 – USD – Crude Oil Inventories