Daily Currency Report and Latest Brexit News.
PM May will today ask her Brexit ‘war cabinet’ to agree to a backstop plan that would keep all of the UK in the customs union until a future trade deal with the EU is established. In return, Northern Ireland (but not the rest of the UK) will stay in the single market. The DUP are reportedly unhappy with this as it would require regulatory checks on goods between Britain and Northern Ireland. The DUP are threatening to withhold support for the government (Who needs them to insure they continue to have a majority in parilment), including potentially voting against the upcoming Budget.
Sterling exchange rates have continued to hold up in light of the above news, suggesting strong optimism regarding Brexit. Recent headlines, however, highlight the government’s tricky balancing act in negotiating with the EU while also ensuring there is sufficient parliamentary support for a deal.
Later this afternoon, the minutes of the September ECB meeting will be published. The Bank revised down its economic growth forecasts and warned that uncertainties relating to rising protectionism, emerging market vulnerabilities and financial market volatility have "gained more prominence recently". Still, the ECB reiterated confidence for nderlying inflation picking up, and it therefore remained committed to ending its asset purchase programme this year.
Finally to the US, US September CPI inflation is the main release today. We expect the headline measure to fall back to 2.5% (consensus: 2.4%) from 2.7%, but the ‘core’ measure excluding food and energy is forecast to edge up to 2.3% from 2.2%. These figures seem likely to reaffirm the Fed’s intention to continue to raise interest rates at a gradual pace, although President Trump last night again lambasted higher interest rates, saying that "the Fed has gone crazy".