Morning Report: 08 August 2018
8th August 2018
GBP. With little top-tier data and a lack of sterling headlines, GBPUSD rallied due to the general unwind of dollar strength in the morning of yesterday’s session. The only things of note yesterday were; Monetary Policy Committee member Ian McCafferty spoke about the uncertainty of QE’s withdrawal impact on radio, data suggesting starting salaries in the UK have started to rise due to a shortage of candidates was released, and rumours started the rounds that Labour may debate a second referendum regarding Brexit at their party conference. Ultimately, it looked like Brexit stress that eventually pared sterling’s early gains, leaving it in the red against the dollar at the close.
EUR. The euro made steady ground against the dollar yesterday, and arguably more importantly tested key resistance levels against sterling, of which it broke this morning. EURGBP has been trading in a tight range since December 2017, as both individual currencies lost out on ground against a broadly rallying dollar. Brexit uncertainty continues to weigh on sterling, and with the unwind of dollar strength in yesterday’s session, the euro rally prompted EURGBP to climb higher. This morning, Italian Minister of Economy and Finances, Giovanni Tria, stated that the Italian government has revised down its GDP growth forecast from 1.5% to 1.2% this year, and from 2% to 1.1% in 2019. Although, this negative release has had little effect on the euro rally this morning.
USD. The G10 broadly rallied against the greenback yesterday with the exception of CAD and GBP. With no set catalyst, the dollar has been broadly fluctuating within a set range since the imposition of tariffs against China. As the DXY dollar index approached the upper bound, a period of dollar weakness occurred as the DXY index fell 0.17%. This morning China released its trade balance. Exports rose 12.2% in dollar terms, far higher than the 10% forecast, evidencing the CNY depreciation counteracted trade uncertainty and tariffs. The effect of the CNY depreciation was greater than the negative accounting impact of the depreciation; growth in exports rose even when converted into dollars using a weaker exchange rate. Imports rose 27.3% in dollar terms due to higher energy prices, causing a decline in the trade balance as a whole. This doesn’t bode well for the Trump administration, which previously stated it was “winning” the trade war.
CAD. Yesterday, the loonie was the worst performing G10 currency when measured against the dollar. Oil prices, which the Canadian dollar tends to follow due to it being Canada’s main export, couldn’t capitalise on fresh Iranian sanctions and lower US crude inventories. As the dollar began to pare losses yesterday afternoon, the impact of moderating oil prices in conjunction with the Ivey Purchasing Managers Index undershooting for July at 61.8 from June’s 63.1, suggests reasoning for the loonies losses. This morning the Canadian dollar remains on the back foot as the downtrend in USDCAD looks to be tested. The release of Building Permit growth for June may not come to the loonies aid as the median forecast suggests the release will show negative 0.1% growth MoM, down from June’s 4.7% reading.