Morning Report: 11 September 2018

11th September 2018

GBP. Sterling benefitted from another positive Brexit headline yesterday, with a Bloomberg alert reading that the EU’s Chief Negotiator, Michel Barnier, said getting a Brexit deal in 6-8 weeks was realistic. His comments caused speculation that a one-off meeting could occur in November to facilitate this deal, but reports remain unconfirmed. Sterling rallied off the back of this news, evidencing that it was negative sentiment regarding Brexit that weighed the pound down to such low levels. This was further evidenced as a strong Gross Domestic Product reading for the UK, reading at 0.3% MoM growth for July, did little to fuel a sterling rally yesterday morning. This week remains data-heavy for the pound, and today’s labour market readings could return GBPUSD to levels not seen since the beginning of August.

 

EUR. The euro posted steady gains against the dollar yesterday but conceded ground to a surging sterling. Comments over the weekend regarding Italian fiscal spending removed doubt over a possible Italian exit from the EU due to them violating EU fiscal spending rules. Further to this, both the Economy Minister and Vice President talked down previous extreme left policies, such as a flat tax rate and universal income, and stated that any such policy would be introduced incrementally over the course of the next 3 years. Currently, the Italian administration plan on reducing the lower tax bracket from 23% to 22%. All of these fiscal adjustments are to increase growth in the Italian economy by around 1% to the EU’s average. Today, the euro rally may continue with Q2 employment data released at 10:00 BST.

 

USD. The dollar had a mixed bag yesterday, posting losses against GBP, EUR and NOK most notably, whilst making ground against CHF and JPY. The NFIB Small Business Optimism measure is released today at 11:00 BST for August, with an increase in small business’ expectations, forecast in light of a strong economic backdrop. But arguably, data releases are playing a small part in the dollar’s price action recently as investors await developments on fresh tariffs threatened by Donald Trump over the weekend.

 

CAD. The loonie traded relatively flat against the greenback yesterday but has started making headway this morning as the USD unwinds. Today, Canada’s Foreign Minister Chrystia Freeland will be in Washington to continue discussions on NAFTA as the September deadline approaches. Congress breaks up in September ahead of November’s midterm elections, and any NAFTA deal would have to be passed by then in order to be enforced this year. Further pressure is added to Freeland as the Trump administration has already struck a trade deal with Mexico and can threaten to push ahead without Canada’s inclusion.