Sterling put in an outstanding performance in the US session. News that the UK has bowed to the EU’s demands over the Brexit Bill boosted the pound. The UK has reportedly offered the EU close to their asking amount to settle the Brexit Bill. Clearing this financial hurdle brings the two parties much closer to beginning trade and transition deal talks, which could mean a smoother Brexit.
Following the announcement, the pound surged to a two-month high versus the dollar and has continued to climb in early trade on Wednesday. GBP/USD is trading steadily above $1.34and has potential to head towards $1.35, as positive sentiment drives the pound. Should today’s US third quarter GDP data disappoint, then the pound could extend its rally further.
After a 1% rally in the previous session, the FSE is looking at a weaker start this morning. This is in part due to a stronger pound, which is not beneficial for the 70% plus international firms on the FTSE which earn revenue abroad.
US tax reform clears another hurdle
The US stock markets finished at record highs on Tuesday, as the Senate took a step closer to passing the long-awaited US tax reform bill. The Dow soared 255 points to finish at 23,836, whilst the S&P500 jumped over 1%, with financials up over 2.5%.
The senate budget committee voted to send the Republican’s tax bill for a full vote in the chamber, which is expected to take place later this week. The House of representatives, have already approved their version of the bill. Following the vote in the Senate, both chambers will need to provide a single version of the bill, which will then be voted on. The financial and the dollar have roared back to life on the news, as investors now see a possibility that the bill could make it to President Trump’s desk for signing before the end of the year.The dollar has rallied and pulled back on several occasions over the past year as hopes and disappointments of the progress of the US tax reform bill has driven trade. Tuesday evening the dollar wasn’t prepared to let anyone pour cold water over the tax bill progress rally, not even Kim Jong Un.
Markets immune to North Korean missile launches?
North Korea fired another ballistic missile in the early hours of Wednesday. This was the first missile launch by the rogue nation since mid-September, carried out in blatant defiance of President Trump’s warnings. On previous occasions, rising geopolitical tensions between US and North Korea has resulted in increased flows to safe haven assets, such as gold, Japanese yen and Swiss franc. Interestingly, this time round, these safe have markets barely flinched. So, whilst it is an alarming headline, for the markets it is not as surprising as it was a few months ago, when a similar action resulted in the dominance of risk off trades.
Gold has actually moved lower in early trading on Wednesday, although it crucially closed above $1285, suggesting that it could still be holding onto its recent uptrend. Meanwhile, the USD/JPY has charged higher as investors continue to cheer the tax bill breakthrough.
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