Morning Report: 16 August 2018

16th August 2018

GBP. The Consumer Price Index measure of inflation for July showed no surprises yesterday, with the headline rate coming in on forecast at 2.5% YoY, and the core reading remaining unchanged at 1.9% YoY. Yet again, this week’s data releases failed to prompt sterling into a rally, with the pound eventually becoming victim to the broad dollar strengthening, ending the day having depreciated 0.2% from the open. Today’s release of Retail Sales for June may steady the ship as sterling looks to pare yesterday’s losses this morning – Core Retail Sales is expected at 2.8% YoY with the headline unchanged at 2.9% – any positive surprises will likely benefit the pound.

EUR. The single currency experienced a tentative day yesterday, testing July 2017’s support level multiple times but failed to close below. As the Turkish lira continues to make gains and remains relatively stable ahead of the Finance Minister’s talk today at 14:00 BST, the euro comfortably sits above yesterday’s open. A positive surprise in the Eurozone Trade Balance, which is expected to remain unchanged at 16.9bn for June, may give the euro the much-needed reasoning to rally. Recent depreciation was due to uncertainty around European Banks exposure to the lira, but with the Turkish currency stabilising the euro may benefit hugely from positive data releases and return to pre-contagion levels.

USD. The dollar continued its recent period of strength yesterday as the broad dollar DXY index posted fresh 12-month highs. The dollar failed to sustain such highs, however, and started this morning by posting losses against the whole G10 currency board with the exception of JPY.  The data calendar looks sparse for the dollar for the rest of this week, and the dollar looks unlikely to break yesterday’s highs.

CAD. The loonie got both barrels yesterday and ended up near the bottom of the G10 currency board yesterday. A period of dollar strength in the morning of yesterday’s session sent USDCAD on its way, but with the dollar posting broad gains against most currencies, oil (which is denominated in the greenback) became relatively more expensive. WTI crude fell down to $65 dollars a barrel in anticipation of the reduction in demand, further pushing the oil-sensitive Canadian dollar down. Manufacturing Sales are released today at 13:30 BST with CPI released tomorrow. The inflation measure is more likely to cause volatility in USDCAD as market participants remain undecided over the timing of the Bank of Canada’s third rate hike this year.