Brexit continues to put pressure on GBP

Financial and commodity markets analytics

Market Watch review. 14.09.2020

In today's release, we’ll cover the following topics:

  • Britain changes terms of Brexit deal. 
  • Global oil demand will continue to decline.
  • Fed will leave monetary policy super soft.

I will start today's review with one of the key news, especially given the lack of publication of important macroeconomic reports from Europe and the CE - we are talking about a bill that will completely cancel out all agreements between Britain and the EU within the Brexit deal. Let me remind you that the British Prime Minister has submitted a bill that provides for the creation of a single economic space in England, Ireland, Scotland and Wales.

This law implies that London will now set the rules for EU countries' trade with Northern Ireland. In the original Brexit agreement, this was discussed differently. Accordingly, the adoption of this bill may put additional pressure on the GBP, because in this case the likelihood of reaching a trade agreement will tend to zero - a negative scenario for Britain and GBP.

Now let's move on to the oil market. BP, formerly known as British Petroleum, has released a report, where it says that real physical demand for oil will continue to decline as clean energy replaces it. It is noteworthy that other companies, as well as OPEC representatives, adhere to a different point of view, or at least try to convince us of this. This is undoubtedly a bad signal for the entire market, but it does not exclude a short-term rise in oil prices in the event of a further decrease in reserves.

Pay attention to the price chart of the American WTI crude oil - quotes are squeezed in a rather narrow price range, indicating market uncertainty. At the same time, only a noticeable recovery in US stock indices, as well as a decrease in reserves, may support oil quotes. Otherwise, the price will continue to decline to $35 per barrel.

Moving to the American trading session, I would like to note the absence of important macroeconomic publications from the USA. At the same time, there is already an active discussion of the upcoming Fed rate decision, which will be announced on Wednesday, September 16. The vast majority of experts interviewed by Bloomberg do not expect rates to change or even hints of the need to change policies. Therefore, we are seeing a moderate weakening of the USD.

Closely monitor the news background and be prepared for all the surprises of the market.