RationalFX : Johnson rules out extension to transition period

RationalFX : Sterling was on track for its biggest two-day fall in nearly two years on Wednesday as concerns rose that Britain could still crash out of the European Union without a trade deal in place at the end of a transition period in December 2020..

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On Tuesday, Sterling lost its post-election rally as the Conservative party ruled out an extension to the current Brexit transition period, renewing fears of a cliff-edge Brexit.

Additionally, Bank of England Governor Mark Carney warned on Tuesday that monetary policy tools risk becoming ineffective unless there is better cooperation from governments on trade and fiscal policy. Money markets are currently pricing in a 60% probability of a quarter point interest rate cut by next October, slightly higher than the 40% prediction made just after the general election result last Friday.


The US dollar rose on Wednesday as strong economic data eased fears the Federal Reserve would continue its rate-cutting cycle in 2020.

Industrial production rebounded in the United States in November, as a strike by General Motors Co workers ended. Housing starts and building permits also showed growth and October JOLTS job openings were better than forecast, suggesting that the US labour market remains strong.

Expectations the Fed will cut rates from the current 150-175 basis point level are 2.2% for the January meeting, 4.3% for March and 12% for April.

Key Announcements 

08.30 – EUR – Retail Sales MoM; Forecast at 0.3% against previous of -0.1%.

12.00 – GBP – MPC Official Bank Rate Votes; Forecast to stay the same as previous at 0-2-7.

12.00 – GBP – Monetary Policy Summary.

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