Morning Report: 26 September 2016

26th September 2016 By: Ranko Berich

GBP The prospect of a “hard brexit” began to weigh on sterling again last week, and GBPUSD is flirting with Friday’s lows as of the time of writing, while GBPEUR is within a hair’s breadth of it’s post referendum low. After Foreign Minister Boris Johnson last week appeared to give a timeframe for article 50 activation, only to be denied by Downing Street, May’s government appears as directionless as ever. The major political development to look out for over the coming weeks and months will be hints as to the UK’s negotiating position on the key issues of immigration, and single market access. Fundamental data may therefore take something of a back seat for sterling this week. This morning’s release of BBA Mortgage Approvals passed without incident, but later in the week Bank of England Money Supply Data on Thursday may have more of an impact.

EUR After some volatility in the wake of last week’s Federal Reserve meeting, EURUSD is slightly higher. However, last week’s events failed to send the pair to even this month’s highs and as a result the euro is looking a bit directionless against USD, although it’s gains versus sterling have been relentless. This morning’s data has been mixed, with good German IFO Business Climate survey data and soft Italian Retail Sales. Today at 16:05 BST European Central Bank President Mario Draghi will speak, and later in the week German and Spanish CPI will be released on Thursday, followed by eurozone CPI on Friday.

USD Looking at the performance of the weighted USD index DXY, last week’s Federal Open Market Committee meeting appears to have been mildly USD negative, and the greenback has not really made any progress towards regaining the bulk of its losses from last week. The Fed signalled that it would probably hike rates in November or December, but left enough uncertainty in the decision to mean that any downside surprises in fundamental data could weigh on the dollar. This week’s calendar is packed with USD data, beginning with New Home Sales at 15:00 BST and a speech from the Fed’s Daniel Tarullo. Later in the week Core Durable Goods Orders will be released on Wednesday, and Fed Chair Janet Yellen will face up to lawmakers during congressional testimony on Wednesday and Thursday. Personal Spending and Income data will be out on Friday.

CAD Weak fundamental data on Friday cost the loonie almost all of the progress it made against USD earlier in the week. The Consumer Price Index was flat for a third consecutive month in August, while Retail Sales also fell well short of expectations. Both data points matched warnings from the Bank of Canada’s Stephen Poloz and Carolyn Wilkins, both of whom have recently commented on the slow and ongoing nature of Canada’s recovery. Poloz speaks again this week on Tuesday, and monthly Gross Domestic Product data will be released on Friday.

UK News

  • Reuters. Bank of England’s Forbes sees no case for further rate cut. Bank of England policymaker Kristin Forbes said she did not see a case for a further interest rate cut to help Britain’s economy after June’s vote to leave the European Union, putting her at odds with the majority of her fellow rate-setters.
  • FT. City of London fears May government is shifting towards ‘hard’ Brexit. Alarm political momentum will trigger damage to financial hub. Senior financiers are alarmed at growing political momentum behind a so-called “hard Brexit” that they fear will erode business confidence, trigger corporate departures and damage the City of London.