News & analysis


Sterling has traded broadly flat against both the euro and US dollar for several sessions now, and has opened this morning well within recent trading ranges on GBPUSD, and slightly lower on GBPEUR. This morning’s news flow includes developments in UK fiscal policy and Brexit, with the Government reopening its support scheme for self-employed people, and reportedly looking to extend bail-out loans to companies owned by private equity funds. Elsewhere, the EU’s financial services chief and executive vice-president Valdis Dombrovskis warned that equivalence recognition for some UK financial services may take longer than the end of this year. Changing EU internal regulation may mean that certain services have to wait before they are assessed for equivalence. The EU has previously stated that some services, such as clearing for securities and derivatives, will be given time-limited equivalence to avoid market disruption at the end of this year. The week’s data calendar will be relatively quiet for sterling, with inflation data released tomorrow, followed by purchasing managers indices and public borrowing on Friday.


The euro opened the week on the front foot against both the safe havens and risk-on currencies such as AUD and NZD, signalling no clear trend in risk appetite. Arguably, rising new daily infections in Australia and the election delays in New Zealand caused these currencies to lose their shine. In the eurozone, Italy followed recent moves in Spain and ordered all nightclubs to close, following a resurgence in virus cases. France warned that all the country’s Covid-19 indicators are trending upward after its new daily cases and positive test rate increased over the weekend, similar to Germany, Italy, and Spain. Despite the increased virus concerns in the eurozone, the CFTC net positioning data shows that euro buying with non-commercial positions stands at a record high and is still rising. This week’s focus in the eurozone turns to Thursday’s ECB minutes release. Any hints on how policymakers intend to steer through the pandemic will be watched closely. This morning, a table published by Bloomberg showing economists’ forecasts for the ECB interest rates following each monetary policy meeting showed that all submissions expect the rates to remain unchanged through October 2021, but Thursday’s minutes should set the tone for any changes in policy. The rest of the week remains quite light on the data front, with eurozone Purchasing Managers’ Index releases catching the eye on Friday.


The dollar remained under pressure at this week’s open and is trading in the red against all G10 currencies except NZD this morning after uncertainties around fiscal measures had the upper hand in headlines. Congress suspended talks for the Covid-19 stimulus package on Thursday already before it left for a month-long recess, fueling concerns about the domestic economic recovery. Over the weekend, the phase-one trade deal review with China was postponed following scheduling conflicts and the need to allow time for more Chinese purchases of US exports, according to Reuters. The trade agreement acted as the lone source of stability in the US-China relationship, and with no new date planned for the initial six-month review, this keeps markets on their toes for the potential of further relation strains. However, the delay could allow China to complete more purchases, which may persuade President Trump to stick to the deal. Politics continued to be the theme over the weekend, with news that Biden’s running mate, Kamala Harris, brought in a record $36m in donations to the Democrat campaign from 150,000 new donors took the headlines ahead of this week’s Democratic national convention. In addition, US House Speaker Nancy Pelosi is also considering recalling lawmakers from a summer recess to address the changes to the postal service, which comes under additional scrutiny with the likelihood of postal voting in November playing a larger than normal role in the election. In economic data, the Federal Reserve is set to release meeting minutes from its July meeting on Wednesday evening, although little deviation is expected from official commentary as the framework review is still underway.


The loonie touched its highest level since January 31st last week but failed to hold onto its gains, which have lagged most of the G10 since the outbreak of the virus. This morning, with the US dollar broadly weaker across the G10 space, the loonie is back on the offensive, but unlike recent trends, the Canadian dollar actually leads the G10 rally this morning with WTI sitting higher above $42 per barrel. Over the weekend, Bloomberg ran a story that highlighted the growing rift between Prime Minister Trudeau’s office and the finance department, with unnamed sources suggesting that the department was overruled in key debates and concerns about the lack of cost-benefit analysis was overlooked in favour of swifter economic support. The article comes after Trudeau’s office released a public endorsement of Finance Minister Bill Morneau on Tuesday, but the pair are expected to meet face-to-face today, a meeting which could end up with a shake-up in the cabinet. Adding fuel to the fire, key Canadian media outlets continue to focus on former Bank of Canada and Bank of England Governor Mark Carney’s involvement as a special aide to the Prime Minister. This relationship has only increased speculation that Bill Morneau could be moved further to the fringes or even out of the cabinet altogether. Despite the loonie now playing catch-up with the G10 rally, CFTC data for the week ending August 14th showed net-short positions for CAD increased. Non-commercial speculative investors now hold 29,547 net short contracts on CAD, a 6,352 increase from the week prior, which leaves the loonie as the most shorted currency in the G10 space by this metric.



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