Morning Report: 09 August 2018

9th August 2018

GBP. Sterling suffered the worst from the dollar rally yesterday out of the G10 currencies. This morning sterling hasn’t started strongly, especially when measured against the euro as it dipped to fresh 11-month lows, but has since clawed back some early losses. Brexit sentiment continues to wain on sterling, and with no headline data nor Brexit positive developments, investors continue to sell in favour of the dollar. Non-commercial investors continue to be net short on sterling, with growing short contracts being taken out soured investor sentiment continues to pressure the pound. Sterling may not find relief until the back end of the week when Gross Domestic Product data is released. Until then, all eyes will be fixated on whether GBPEUR can stay below its recent trading range.

EUR. Euro rallied yesterday in the morning, but couldn’t hold on to this strong form and had to give back some gains later during the day, being left with mostly minor advances at its close. Weakness in sterling due to ongoing concerns of a no-deal Brexit nevertheless propelled euro to its strongest point on GBPEUR in 11 months, despite no data of note coming out on the continental side of the channel. Today’s data calendar remains almost as modestly filled as yesterday’s one, with only the European Central Bank’s Economic Bulletin to look out for at 9:00 BST. Developments in the forming of the new Italian budget may grab headlines today too and move fixed income markets, which evidently can put FX markets in motion as well.

USD. The broad dollar composite index, DXY, started the day off strongly as the dollar made ground against two of DXY’s main components; the euro and sterling. USDJPY, another main component of the DXY index, spent the day trending downwards as murmurs rippled through the market that the Bank of Japan was discussing further tightening. As the euro began to claw back its losses, the DXY index fell 0.34% from its highs, eventually closing in the red for the day. This morning, the dollar looks to pare this week’s losses yet again with the Producer Price Index measure of inflation released at 13:30 BST. With the US economy growing at a strong pace, and consumption measures of inflation sitting above target, inflation stimulated from the producer’s side may surprise to the upside as expectations hold steady at 3.4% YoY for July.

CAD. The loonie, usually one of the G10 currencies that sits more quietly in the background, was in the limelight as the news was dominated by; a 3% drop in oil prices, a continuing diplomatic spat with Saudi Arabia while NAFTA negotiations have also entered a new round. CAD remained surprisingly calm in the middle of all of this and even gained against most currencies, except the traditional havens JPY and CHF. The positive remarks of Mexico’s Economics Minister Ildefonso Guajardo after a two-hour meeting with US trade representative Robert Lighthizer were a big driver behind this CAD strength. Saudi Arabia imploring domestic investors to sell all Canadian investments lost most of its market impact as an improved chance of a new NAFTA deal will likely have a bigger impact on the Canadian economy.