01/10/2020

Sterling rallied as traders adjusted end of quarter positions


GBP

Sterling had a late rally yesterday but this was not due to any macro events or pandemic related announcements. It came after traders adjusted their positions on the last day of the month and the quarter. Despite what had been a fairly mixed day, the rally began just before the 4pm GMT fixing team as traders gave their final reading of the currency. This occurs in a short span of time and usually sees increased volatility as a result as it is the final trading session of Q3.

Initially, the pound struggled in the early part of the day after the lower House of Parliament approved legislation to give ministers the power to break its divorce agreement with the European Union. This means the Internal Market Bill now progress through to the House of Lords for further debate, and signals increased fear amongst investors that this will have a detrimental effect on the negotiations and the withdrawal agreement. This has been viewed by some as a negotiating ploy and a way to force a compromise on the Irish border, as government figures have previously said the powers in the bill will not be needed if a deal is reached.

As the final quarter of the year gets underway, all eyes are fixed on whether any significant progress can be made before the October deadline as we enter the last leg of talks before the EU summit.


USD

The greenback fell on Wednesday after risk sentiment improved and the safe-haven dollar fell as a direct consequence.

Risk sentiment improved largely due to renewed hopes for another stimulus package that could aid the US economy and ease the pain of the pandemic related recession. US House of Representative Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin met yesterday to attempt to broker a bipartisan deal on relief legislation, and optimism grew off the back of the meeting.

However, there is still plenty of work to be done before the November 3rd election and there are still many sceptics in the market. There is plenty of distance remaining between Republicans and Democrats so the market is braced until the package is signed, sealed and delivered.


Key announcements

  • 15:00 – USD – ISM Manufacturing PMI (Sep); expected to increase to 56.3 from previous 56

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