Morning Commentary: The Next 100 Days

Foreign Exchange - Morning Commentary

The Next 100 Days

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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
As we arrive this morning, global equities are all in positive territory, but G7 interest rates remain suppressed, global commodity prices are mixed, and the U.S. dollar is stronger against almost all major and emerging market currencies. The U.S. dollar’s gains are related to Congress and the White House reaching a budget compromise and defusing a potential debt limit issue for the next two years (see below).
Boris Johnson has won the Tory leadership vote by a landslide and is set to succeed Theresa May as PM of the U.K. tomorrow. His leadership abilities will be tested early as he has no clear parliamentary majority, an economy that is tilting toward a recession, a British pound that reflects a lack of investor confidence and a country and Parliament that remains acrimoniously divided over the Brexit issue that has been festering for three plus years.
He will have just 100 days to negotiate a new divorce plan with the EU before the U.K. is due to leave the bloc at the end of October. PM May failed three times to gain the support of Parliament for her Brexit deal, and Boris Johnson must now find a way to build a coalition of support over some very divisive issues. He will need all hands on deck; he will be assembling a cabinet as early as tomorrow and speaking before Parliament on Thursday. The British pound is weaker on the session but off its lows. Good luck Boris…you will need all the help you can get.
  • The U.S. dollar (DXY) is stronger for the third day in a row, and the euro has broken through its key support at $1.1200. Two factors have helped to explain the DXY strengthening: an ongoing recalibration of Fed monetary policy expectations and the announcement yesterday of Congress and the White House reaching a budget deal. The debt ceiling will be suspended for two years until July 31, 2021. Republicans secured more money for defense while Democrats secured more for domestic spending.
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