ith the Federal Reserve expected to stand pat on policy for the foreseeable future, attention in the market is beginning to turn to fiscal policy and the upcoming presidential election. The latter will come into focus this evening, with President Trump and Joe Biden to hold their first television debate ahead of November’s vote. Investors will be keen to hear updated economic stimulus plans from both candidates and how they intend to support the US economy post-virus. The debate is set to take place at 02:00 BST, so if there is any reaction in the FX market it may not be until European markets open tomorrow morning.

In the meantime, a number of Federal Reserve members will be speaking this afternoon, including members Williams, Clarida and Quarles. Investors will also have one eye on a handful of key economic reports out later this week, notably Wednesday’s revised GDP numbers and Friday’s payrolls report. European data is at a bit of a premium this week, with the exception of Thursday’s PMI figures.

Pound outperforms ahead of crucial week of Brexit talks

Sterling once again outperformed most of its peers yesterday and was one of the best performers in the G10.

This move is a little bit surprising given the dovish comments over the weekend from Bank of England MPC member Tenreyro. Talking on the topic of negative interest rates, she noted that the bank ‘have been discussing our toolkit in recent months, including how effective negative rates might be in the current context’. According to Tenreyro, the evidence had been ‘encouraging’ and that there had been an ‘almost full’ pass through of negative rates into retail lending rates. Comments from fellow MPC member Ramsden were, however, slightly contradictory, suggesting that he was far from keen on the idea.

Meanwhile, this week is shaping up to be a very important one as far as Brexit is concerned, with the UK and EU to begin three days of negotiations in Brussels. There appears cautious optimism in the market that some form of agreement will be reached before the end of the year that sidesteps the ‘no deal’ scenario. Boris Johnson has said that a deal needs to be reached by the 15th October EU summit, although we wouldn’t be at all surprised if an emergency summit is held at some point in November to sign off on what we think will be a ‘bare bones’ trade agreement.