Sterling in Critical Condition

No end in Sight

The pound’s fall accelerated yesterday as liquidity began to return to the market after what seems to have been an interminable summer period. Traders are content to buy the common currency, even at these elevated levels, content with the knowledge that not only are there sufficient factors to drive the current weakness but there is nothing the Government or Central bank can do to arrest the slide.

Sterling fell to a low of 0.9238 and has continued to fall overnight. The Government’s attempt to demonstrate proactivity by issuing a whole raft of discussion papers has not been well received by the press, the opposition or in Brussels.

Yesterday’s attempt at clarification of the Government’s position over the role of the European Court of Justice simply brought further controversy and bolstered the view that there is no cohesive plan in place for Brexit as the first timeline approaches.

The two sides in the Brexit debate appear to be getting farther apart as positions become more entrenched. The treatment of EU citizens remaining in the following Brexit is a major concern for Brussels. The U.K. has at least confirmed, for better or worse, that it won’t countenance any laws other than those made in Westminster being applied in Britain.

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ECB speaking with one voice

It is difficult to recall ever having heard a comment or speech from a member of Governing Council of the European Central Bank in which he or she departs from the “official” line.

The Governor of the Estonian Central Bank and Council Member Ardo Hansson spoke yesterday of the banks relaxed view over the rise in the common currency. He confirmed that withdrawal of additional stimulus is tied to the performance of the region’s economy. The next ECB meeting is on September 7th and the tapering of the asset purchase scheme is slated for discussion then.

Mario Draghi, the ECB President, made the first of two scheduled speeches yesterday.

Speaking Germany Sr. Draghi avoided the pitfalls of his last public offering where he gave an unusually bullish view of the Eurozone economy. Yesterday he confined himself to comments about changes to monetary policy “never being easy” and avoided any mention of the steps available to the ECB

The Central Bankers meeting which got underway in Jackson Hole Wyoming yesterday is unlikely to see much in the way of policy clarification when Draghi speaks again on Friday.

There will also be a speech from Fed Chair Janet Yellen. Both she and Sr. Draghi are under pressure to reveal how the withdrawal of additional stimulus will work and its timing. Mark Carney, the Bank of England Governor can, at least, avoid those questions as he grapples with the effect of a slowing economy despite the stimulus that is in place.

Trump continues to campaign

President Trump has been criticized over his inability to enact any of the policies he promised during his election campaign. There is, however, one policy that he finds works for him and that is when things get a little rough get out on the road and address your adoring supporters. The transition from Businessman to politician has not been easy so Trump has simply avoided trying to bridge the gap.

He spoke in Arizona on Tuesday in a belligerent manner confirming that even if it meant shutting down the government the wall between the U.S. and Mexico would be built. Arizona is a state beset by issues over illegal immigration so Trump was “preaching to the choir”. He also defended his comments over the Charlottesville riots blaming the media (his favourite bete noir) for giving a platform to extremists.

Yesterday, speaking in Reno Nevada, he was more conciliatory in tone, urging unity. This continued re-invention is driving concern over how much longer he can continue making promises that don’t amount to anything but words. Economic stimulus and fiscal realignment are the most pressing issues. The Fed’s policy changes rely on expansionist policies yet, so far, they remain firmly in the President’s imagination.