Morning Report: 10 September 2018

10th September 2018

 

GBP. After a turbulent week of last for sterling, GBPUSD has started on the back foot this morning. The dollar’s broad rally has filtered into sterling’s price action, which was fairly positive last week as news broke that the EU was ready to fudge a deal with the UK. The Financial Times reports this morning that the EU leaders are ready to give Michel Barnier, the EU’s Chief Negotiator, a mandate to close a Brexit deal. With a data-packed calendar for sterling this week; Gross Domestic Product released at 09:30 this morning, Unemployment data tomorrow and the Bank of England’s rate decision Thursday, sterling may begin to find comfort on the easing of negative investor sentiment.

EUR. The euro entered the weekend on a low on Friday, after losing out against most major currencies on a day that saw the German Trade Surplus shrink, in line with survey data coming out earlier. Today, the euro may be off to a better start of the week as the Italian Finance Minister Giovanni Tria tried to calm markets by saying that Italy knows it should cut its debt load and keep its budget deficit in check. However, though market concerns regarding the political landscape in southern Europe are dissipating, the reverse is happening in northern Europe, as in Sweden, the far-right Sweden Democrats electoral advances put the coalition talks there in a stalemate before they even got started. This is some indication that the wave of non-centric, and often eurosceptic, parties in Europe hasn’t died down yet. Industrial Production on Wednesday, a European Central Bank meeting on Thursday and the Trade Balance on Friday will be the main events on the Eurozone’s economic calendar for this week.

USD. Following on from Friday’s strong labour market data, which saw Average Hourly Earnings increase a staggering 0.4% in August, the dollar has continued to post broad gains this morning. The Producer Price Index measure of inflation, Retail Sales and the Consumer Price Index measure of inflation are released this week for the US dollar, but investors attention may be focused on the fresh 25% tariffs on $200bn of goods that were suggested by both the White House and Beijing late last week. This addition in tariffs would imply that almost half of the commercial exchanges between the countries are impacted by tariffs.

CAD. CAD weakened against the dollar in the latter half of the day on Friday after it became clear Trump does not back down from his hardline stance on China trade, which further fuels worries about the inclusion of Canada in the new NAFTA treaty. Besides that, the loonie wasn’t helped by August labour market data either, which saw a miss on the Employment Change, the Unemployment Rate and on the Average Hourly Earnings component. The Ivey Purchasing Manager Index meanwhile offered a glimmer of hope, coming in above expectations at a strong 61.9 reading for August indicating an acceleration in economic activity.

FX elsewhere. The Swiss franc continued to benefit from safe-haven flows on the back of concerns about the political landscape in Europe, emerging market woes and – most recently it seems – the newly announced US tariffs on Chinese goods. The franc broke through an important level against the euro this morning and such strength may have the Swiss National Bank interfere in markets, as they feel “the Swissie” is overvalued against other currencies. This may reverse the most recent moves to some extent.