Weekly review of EUR / USD, GBP / USD pairs: Preparing for the holiday

Frankly, the past week was just crazy, especially because of the incessant Brexit, which seems to be postponed just in operation. But much more interesting is that it is completely different since the pound remained in the same positions from which it began. However, the single European currency could be well strengthened.

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Hence, the European Union gave the UK a new respite as they gather for an extraordinary Brexit summit and after listening to all the outcry and lamentations of Theresa May on the obstinate Labor Party, who are forever blocking the adoption of the most remarkable divorce agreement in the history of mankind. Just so that the "Iron Lady - 2" was able to win over Jeremy Corbin with his "accomplices and here such a song began immediately, that you wonder. Absolutely all the means of mass agitation and disinformation began to shout that Britain was given a reprieve right up to October 31st. Along the way, they began to look for some kind of mystical signs and omens in it as they noticed that it was Halloween. But in fact, the United Kingdom was given a delay only until March 23 and prior to this date, the UK will sign the agreement. This resettlement will take place exactly on October 31 with all the necessary procedures and transitional periods. It is either the UK must take part in the elections to the European Parliament, which is at odds with the very idea of Brexit and will obviously not completely understood by both Her Majesty's subjects and Theresa May's political partners. . Virtually no one doubts that if the UK participates in elections to the European Parliament, the political crisis in the United Kingdom will only intensify. Just as in the case of the cancellation of Brexit or holding a second referendum. In other words, the conditions set by the European Union are not very different from those that they used to be, only the UK should now sign the agreement exactly for the European elections. Otherwise, either they go without an agreement, with all the consequences or get a political crisis that threatens to bury the entire political class in the United Kingdom. Thus to some extent, a certain uncertainty of the pound can be understood and of course, against the background of such epoch-making events that have good chances to go down in history, nobody paid attention to data on industrial production in the UK, which stopped falling by 0.3% and showed an increase of 0.1%.

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But much more interesting is all of what happened with the single European currency. It grew after all and if you blame it on the euphoria of the decision of the European Union about Brexit, then the question remains - what happened to the pound then? Moreover, it is still more fun if you look at the US statistics, especially on inflation and producer prices. After all, inflation accelerated from 1.5% to 1.9% and the growth rate of producer prices from 1.9% to 2.2%, whereas it was predicted that inflation would rise to only 1.8%. Instead, the growth rates of producer prices should have remained unchanged. Yet, the answer lies in the content of the text of the minutes of the meeting of the Federal Commission on Operations on the open market, which almost directly states that the refinancing rate will be raised next year. However, when the meeting was held, inflation showed a downward trend on the contrary, which was reflected in the form of fears of the leadership of the Federal Reserve System. Hence, we can safely assume that the rhetoric of Jerome Powell will soon change to the joy of investors, large and small. Apparently, no one wants to think and risk so far.

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However, the answer to the question about the bad behavior of the single European currency, which most likely lies in Europe itself and more precisely in the results of the board meeting of the European Central Bank. Naturally, Mario Draghi was extremely cautious in his statements and confirmed once again that before the start of the next year one should not wait for the refinancing rate to increase. Also, the head of the European Central Bank did not answer the question of how long the regulator intends to distribute long-term loans to banks, which are designed so that these same banks could calmly return to Mario Draghi the money they received during the years of the quantitative easing program. It is like theory and practice again diverge. It can be said with all certainty that this is an official statement saying that the European Central Bank has headed for a gradual normalization of monetary policy or then to tighten if it is absolutely needed.

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Of course, one cannot ignore the latest rumors about how negotiations between the United States and China are going on regarding a full-scale trade agreement. In many ways, this is precisely what explains the growth of the single European currency while the standing of the pound is explained by a complete lack of understanding of what will happen to Brexit in the end. The thing is that the trade agreement should have already been signed at the end of April, according to the assurance of the same mass agitation and disinformation. The trade agreement should have already been signed at the end of April but negotiations continue. It seems that on most issues the parties found a compromise and this is encouraging. Consequently, the world can avoid a full-scale trade war between the two largest economies in the world. After all, such a conflict will inevitably affect all countries of the world. Even the artillery preparation, with which the United States and China arranged in the form of a mutual increase in duties on a number of goods, has greatly frightened all those who were not involved since these measures affected many countries of the world. Increased optimism about the successful conclusion of negotiations reduces risks globally, which contributes to the growth in demand for assets of developing countries and not only to them. In general, American investors are more inclined to invest outside the United States, which adversely affects the dollar.

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With the pound, everything is much more fun and joyful as is often the case. At first, the labor market data may show that the average wage growth rate accelerated from 3.4% to 3.5%, taking into account premiums. All other indicators may remain unchanged and from this, it follows that employees are willing to work more, which always pleases investors. Also, inflation in the United Kingdom should accelerate from 1.9% to 2.0%. But that's not all, as the growth rate of retail sales should accelerate from 4.0% to 4.6%, which coupled with rising inflation resulted in the rosy dream of any investor in general. Hence, the pound may be late in pursuing the single European currency and rising to 1.3150.

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The material has been provided by InstaForex Company - www.instaforex.com