Morning Report: 07 August 2018

7th August 2018

GBP. Sterling was the worst performing G10 currency against the dollar yesterday, depreciating nearly half a percentage point. The weekend’s Brexit headlines set the tone for sterling which started trading downwards in the morning session, and a swathe of dollar strength in the afternoon, which sent EURUSD lower, pushed sterling’s decline onwards. This morning, the British Retail Consortium released their retail sales measure which monitors like-for-like sales YoY. Growth in retail sales slowed to 0.5% in July, below consensus of 1.5%, and down from June’s 1.1%. The hot weather is the catalyst for the decline in sales as non-food sales show fatigue following their decline in June due to the World Cup. The confirmation of a moderation in retail sales from last month’s ONS measure for May doesn’t shed any new light, and sterling has been on the front foot this morning despite the negative release. This evidences the distaste by investors on such low levels for sterling as it closed yesterday at a fresh 11-month low.

EUR. The first revelation of the budget plan of the new Italian government did little to move the single currency, leaving euro in the unremarkable middle of the G10 currency board. Both the leader of the Five Star Movement Luigi di Maio and leader of the League Matteo Salvini shared they did not consider the European Union’s 3% budget rule a breaking point for their plans of installing a flat tax and decreasing the pension age. This morning the German June Trade balance underperformed expectations at a surplus of 19.3 billion, with the deficit on the French trade balance being wider than forecasted at – 6.2 billion.

USD. The greenback was among the better performers of the major currencies on a day in which Trump restored US sanctions against Iran and announced plans for tougher measures against the middle-eastern power. Meanwhile, yields on 10-year treasuries eased off a bit for the third day in a row, likely because distress in Emerging Markets like Turkey increased demand for 10-year treasuries. Today at 15:00 BST we have the Jolts job openings.

CAD. The likelihood of NAFTA being negotiated increases by the day, and despite Canada not participating in this round of talks, further meetings at the end of the month will see their inclusion. With a bank holiday yesterday, the loonie was driven by the dollar move, and thus posted a marginal decline against the greenback.