Morning Report: 23 August 2018

23rd August 2018

GBP. Sterling made very minor gains against the dollar and, marginally lost out against the euro, as Brexit negotiations continued in Brussels. With a lack of macroeconomic data, Brexit is taking sterling’s headlines, with Brexit Secretary Dominic Raab giving his first major speech at 11:00 BST with 20 no-deal Brexit technical papers to be released shortly after. The Telegraph has reported that the UK will tax EU products and force business’ to treat EU members as “third countries” as a result of a no-deal break.

EUR. For the sixth day in a row, the euro saw advances against the dollar, as the highest wage growth in the Eurozone since 2013 set the mood. After Q1 wage growth already accelerated to 1.7% year on year, the Q2 growth increased even faster at a pace of 2.2% annualised. This is in line with Mario Draghi’s views that wage growth conditions are contributing to strengthening inflation pressures in the Eurozone. Rising wages is welcome news for the ECB, as one of the reasons for ending their Asset Purchasing Program was that the ECB was running out of bonds it was eligible to buy under its own restrictions. The timing of this wage growth couldn’t be more convenient for the credibility of the ECB. Today’s data calendar is lively with Flash Manufacturing and Services Purchasing Manager Indices at 9:00 BST and the ECB Monetary Policy Meeting Minutes at 12:30.

USD. Rumours about former Trump attorney Michael Cohen testifying on links between the presidential campaign of his former boss and Russians were too much to handle for the greenback, and it shed basis points against most G10 currencies. This morning, headlines read that Cohen has struck a deal to testify against Trump in order to reduce his sentencing, whilst Fox News releases their interview with the President this afternoon – the first interview Trump has formally taken since Cohen’s guilty verdict. For the first time in history, the Washington Post Fact Checker labelled a statement of a politician as an outward lie instead of misleading or merely false, with Trump’s repeated denial on his knowledge of hush money paid to former Playboy model Stormy Daniels now coming back to haunt him. In the background of this turmoil, the Federal Open Market Commission Meeting Minutes released yesterday evening showed the FOMC considers the economy still on track to hike rates in September. Tonight the Jackson Hole Symposium will start, which can be viewed as the annual Federal Reserve’s conference on central banking.

CAD. The Canadian dollar was one of the biggest beneficiaries out of the G10 from yesterday’s USD weakness. The loonie set a new 10-day high as oil prices rallied and signs of progress in NAFTA negotiations supported Retail Sales figures for June. The loonie’s rally seems short-lived, however, as this morning’s dollar strength pared all of the loonie’s gains yesterday.