GBP sensitive to Brexit talk; BOC stand pat

Summary:

GBP seesaws on Brexit rumours
UK services PMI beats forecasts; GBP still higher on the day
Small declines for CAD as BOC stand pat
US and CAD trade data paint mixed pictures
Cryptos plunge as Goldman cancels trading desk plans

It’s been a volatile day for the pound with two wild swings seen this afternoon on reports of Brexit developments. First the currency jumped higher with GBPUSD rising over 100 pips in a matter of minutes after newswires suggested that Germany and the UK would drop some key demands that have been blocking a deal. However, a fair chunk of these gains were handed back close to the European close after fresh remarks from a German politician said that the country’s position had not changed.

This morning’s better than expected release came as a welcome surprise for the UK economy with the latest survey on the service sector seeing its index rise higher after the disappointment of the manufacturing and construction equivalents. The reading itself of 54.3 is up on the 53.5 seen last time out and given that the consensus forecasts amongst economists was for a rise to 53.9 this release is a clear beat. This faster pace of growth for the sector in August keep the economy on track for growth of 0.4% in the third quarter, but it should be pointed out that increasingly pessimistic business expectations do take the shine off of it a little.

The September meeting of the Bank of Canada had been seen as a potentially big event several weeks ago, but some recent soft data such as the GDP miss had lowered expectations for any move coming into it and this afternoon this was confirmed with the base rate held steady at 1.5%. The CAD heatmap reveals that the currency is falling against all of its peers other than the JPY with the GBP the biggest beneficiary after the pound jumped on some seemingly positive Brexit news.

North America trade has been a hot topic lately with the NAFTA negotiations dominating many press stories. The US and Canada have yet to reach an agreement on what their future trading relationship will be despite the former finalising a deal with their southern neighbour Mexico. While the outcome of these discussions are arguably the single biggest driver for the Canadian dollar, it is interesting to look at recent trade data to assess the current state of play. This afternoon the latest trade balance figures for both countries were simultaneously released with the US deficit jumping to its largest in 5 months whereas the Canadian deficit was almost erased entirely after falling to its lowest level in more than a year.

There’s been some large declines seen in the cryptocurrency space today with double-digit declines seen in Ethereum and Dash. Goldman Sachs have announced they are shelving plans for a crypto trading desk for the time being in what is a pretty damning indictment of the outlook for the sector.

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