Morning Report: 19 June 2017

19th June 2017 By: Ranko Berich

GBP Despite the volatility in the pound last week, when markets were reacting to indications from the Bank of England of an increased probability of an interest rate hike in the UK, the pound has started this morning relatively quietly. The biggest news this week will be the official start of the Brexit negotiations between Britain and the European Union. The EU forms a united front at the moment, willing to secure a trade deal, while at the same time taking a firm stance against the UK in order to deter other EU members entertaining the thought of leaving the union. The position of the UK in this negotiation is unclear at present, since the governing Conservative party haven’t yet struck a formal coalition deal with their potential political ally, the DUP, so far, adding to the uncertainty of the internal divide over Brexit within the party. Today at 13:00 BST the Rightmove HPI m/m numbers come out, informing us about the change in asking prices of houses for the last month.

EUR The euro finished the week strengthening against both the USD and GBP last Friday, without any clear reason for the move. Over the course of the weekend, the biggest news concerned the decisive victory of Emmanuel Macron’s party En Marche! in the elections for the French Assemblee, securing 350 out of 577 seats together with its centrist ally Modem. This victory gives the centrist politician a strong hand for pushing through on his planned reforms, though the low voter turnout may put some question marks around how strong and how broadly supported his mandate really is. Jens Weidmann, the president of the Deutsche Bundesbank and one of the most vocal critics of the expansionary policies of Mario Draghi’s ECB, speaks this afternoon at 16:00 BST at the Colloquium in Frankfurt.

USD The dollar has been experiencing a small selloff against GBP and EUR since Friday morning, on the back of the disappointing housing and construction data. The main longer term story in the US at the moment is the increasing divergence between the economic outlooks of the Federal Reserve, compared to the market. As expected, the Fed did hike its base interest rate last Thursday. Furthermore, it also gave a very optimistic outlook regarding future inflation and economic growth in the US, mainly based on strong labour market data. However, when we compare the Fed´s official predictions with where implied interest rates are actually trading in bond markets, it becomes clear that markets are not as confident that interest rates in the US will rise as quickly as forecast. Given that favourable interest rates have been a key source of USD strength over recent years, this is a theme that will continue to have an important impact on the medium term outlook for the dollar. Later today at 13:00 BST FOMC member Dudley will speak.

CAD The Loonie spurred up last week after Bank of Canada senior deputy governor Carolyn Wilkins told she observed the Canadian economy picking up speed. It rode on the back of a rising oil price to a stronger position against USD last Friday, though it’s giving back some of it gains this morning. No major release for CAD are planned today.