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Politics returns to the currency market

Brexit deal playing no part in the currency market as yet..
In the past, any deal made over Brexit has been met with £ strength. So far though, there has been 0 change to the currency, even though a new deal is expected to be announced in due course. Economists are split in their views as to whether or not GBP will receive a boost once a new agreement has been confirmed.

Some believe the deal is no game-changer and it will have little effect on the value of the Pound, whereas others predict a bump up due to making a significant step away from an outright EU-UK trade war. Prime Minister Sunak is believed to be a sensible pick from the EU side and someone who will look to combine fiscal restraint with an effort to end EU-UK tensions over the Irish border. 

Whilst a positive reaction could be on it's way for Sterling (mainly £-€), it's very unlikely to have a huge or lasting impact. Apart from a couple of MPC member speeches (which were non-events last time out), the only data the UK provides this week comes in the form of house prices and lending. A potential hot topic in the months ahead..

We mentioned last week that a lack of economic data can hurt a currency and that is exactly what the Euro has seen 2-weeks in a row. That all changes this week with the Euro-Zone releasing the most data in the days ahead. Inflation news is the major release of the week, which is expected to continue its downward trend.

The single currency lost 1% of its value across the board last week, after playing the 'sitting duck' role the past 2-weeks. The £-€ rate may see a further increase this week, but you can bet the Euro will bounce back again at some point with help from the ECB in the weeks ahead.

The main news from the US (inflation) is a sticking point to the FX market as a whole at the moment. The realization is that inflationary pressures in the Western industrialized countries are more persistent than market participants had originally suspected.

The Fed (a pro-active central bank), therefore look likely to continue raising interest rates for the time-being, which is then good news for the $. We may see another good week/month ahead for USD, after a bit of a crash earlier in the year. Global sentiment needs to improve for the £-$ rate to perform better.