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October 2017

Sterling slips on EU demands

Published: Friday 20 October 2017

  • Sterling slips on EU demands
  • NZD weaker as government changes
  • Canadian data should strengthen CAD
By David Johnson
 
 
Blackmail is an ugly word and so is extortion, so I won’t use them, but I must think of another word for the EU saying to Theresa May, ‘we will not discuss future deals unless you offer us much, much more money’. The markets seem to feel the Brexit talks are going to get uglier before they get better and the Pound has been the victim.
 
Sterling is down to €1.11 and $1.31 ahead of this morning’s UK government borrowing data. A small scale uptick in borrowing levels is forecast, so that won’t help the Pound ahead of the weekend. Traders may well sit on their hands as far as the Pound goes until Wednesday, when the first estimate of Q3 economic growth is published for the UK. A drop to an annualised 1.5% growth rate seems to be the market consensus forecast. Anything above there would be good for the Pound, but we will have to wait to see.
 
After 12 days of post-election wrangling in New Zealand, the Labour Party has formed a coalition with the NZ First Party to oust the National Party and changed the government. This is a real surprise, but this coalition, along with the Green Party has a slim two-vote majority. It will take a couple of days to work it out completely, but the market reaction was as swift as it was negative. The GBPNZD rate shot up to its highest since May and looks capable of testing the high we saw in May at NZ$ 1.8950. The recent range has been NZ$1.83-1.87, so this could be the start of a breakout.
 
European data is practically non-existent today, so, just like the Pound, the Euro will be washed around by rhetoric from EU leaders as Angela Merkel gets into discussions with potential coalition partners.
 
This afternoon brings Canadian inflation and retail sales data. All of that is forecast to be pretty strong, so the CAD could well strengthen as we near those releases; and post-release as well, if the numbers are better than forecast. Canadian Dollar buyers may wish to act early to avoid risk.
 
This afternoon also brings a speech from the US Federal Reserve Chairwoman at the National Economists Club in Washington. Will the Fed seek higher interest rates, lower Quantitative Easing (QE) – and when will all this happen? These are the only things we really want to hear. Maybe hints of that will suffice? The USD is still strong and will strengthen if monetary tightening is mentioned.
 
And, have you ever had that feeling of ‘if only’ when you see a restored old car sell for tens of thousands of pounds and you know you had one of those but yours was better and it only cost you a few hundred at the time? Well, imagine how Spain feels. On this day in 1820, they gave part of Florida to America for just $5 million in claims compensation. They must be thinking they should have held onto it. But maybe they could sell Catalonia to the independents for more today and get some of their money back..? Second chance and all that.
 
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Long Journey
 
A couple had been arguing during a long journey. It started with map reading disagreements and escalated from there. As they drove along a country road, 30 minutes had passed since either of them had spoken and the air was thick with resentment. Neither of them wanted to give in first. As they passed a small farm, there were several pigs wandering around a small paddock.
In a voice heavy with sarcasm and with a wry smile, the wife said, "Relatives of yours?"
The husband sighed as he replied, “Yup….In-laws."
 

Today's major economic releases

Market BST Data/Event Previous Expected
EUR 09:00 EU: Current Account 25.1b 26.2b
GBP 09:30 UK: Public Sector Net Borrowing 5.1b 5.7b
CAD 13:30 Canada: Consumer Price Index 0.1% 0.3%
CAD 13:30 Canada: Core Consumer Price Index 0.0% 0.0%
CAD 13:30 Canada: Retail Sales 0.4% 0.5%
CAD 13:30 Canada: Core Retail Sales 0.2% 0.3%
USD 15:00 US: Existing Home Sales 5.35m 5.30m