Morning Report: 30 August 2018

30th August 2018

GBP. The British pound had a sterling day yesterday as Brexit headlines showed positivity over negotiations with the EU. Michel Barnier, the EU’s Chief Negotiator in Brexit talks, released positive statements saying the EU is “prepared to offer Britain a partnership such as there never has been with any other third country” after speaking with German Foreign Minister Heiko Maas yesterday. GBPUSD rallied around 1% in the following 30 minutes from the Reuters headline, suggesting that Brexit negativity was fully priced in. Sterling has since sat comfortably above a key level of support since the comments bumped GBPUSD through two resistance levels, and with no top-tier data releases for the week, sterling may finish this week at the top of the G10 currency board against USD.

EUR. After days of solid gains, the single currency took a breather and ended up in the middle of the G10 currency pack, with pronounced losses against sterling, however. Euro experienced some pressure during the morning as Bloomberg reported that the new Italian government was attempting to persuade the European Central Bank for a new tranche of bond purchases. Euro stabilised later when Italian government sources denied the story. All throughout the morning, German Bundesländer release their flash Consumer Price Index figures for August one by one. The Spanish Flash CPI already came out at 2.2% year on year for this month earlier this morning.

USD. Despite a broad sell-off in Emerging Market currencies and a beat on the second Q2 Gross Domestic Product reading, the greenback couldn’t profit and softened against most major currencies. The improved sentiment around trade may have reversed safe-haven flows that earlier supported the dollar, after Trump made positive remarks about the chance of a trade deal with Canada, while he also signed exemptions on the steel tariffs for Argentina, Brazil and South Korea. This afternoon at 13:30 BST the Federal Reserve’s favoured inflation reading stands on the menu; the Personal Consumption Expenditures.

CAD. The loonie was off to the races after optimism about a NAFTA 2.0 trade deal broadly rose, which had the currency rank high on the G10 currency board and comfortably settle below an important technical level on USDCAD. Foreign Affairs Minister Chrystia Freeland reported Canada and the US will plan a series of marathon negotiations in order to hammer out a shiny fresh trade deal by Friday. The sweetened sentiment around CAD, though the risk remains that a Friday deadline is over-optimistic, holds some downwards risk for the loonie in the back half of this week. In this sudden sweep of NAFTA development,s one would almost forget that Canada June GDP is due today at 13:30 BST.

FX elsewhere: Yesterday was a day to quickly forget for Emerging Market currencies, with the Argentine peso and the Indian Rupee both reaching fresh all-time highs. The Argentine President Mauricio Macri made a public plea to the International Monetary Fund to speed up the release of the promised bailout funds, while a surge in crude oil prices may have dragged further on the rupee as India imports 80% of its oil needs. The general sentiment around EM currencies went sour yesterday by any standard, as also the South African Rand, the Turkish Lira and the Colombian Peso suffered.