News & analysis

GBP

With Parliament prorogued, sterling was as busy as the House of Commons yesterday. GBPUSD traded within a 0.5% range and ultimately closed the day flat despite UK labour market data being released in the morning. July’s Labour Market report from the ONS showed the jobs market in very good shape overall, despite Brexit risk having frozen business investment over the past year. The employment rate was the joint highest since records began in 1971, headline average weekly earnings grew at their fastest annual rate since 2008, and real wages were up a solid 1.9%. Some nit-picking could be made about the slowing rate of job creation and the continued fall in vacancies, but on the whole, the figures showed the labour market remained solid. Today, the Telegraph reports that PM Johnson will seek a new Brexit deal with the EU that would remove the Irish backstop – a plan that May attempted in Parliament but still struggled to get through. The PM wants an all-Ireland zone for checks on most goods and services that would remove the need for the backstop. Johnson looks to have swung the DUP on side by including a “Stormont lock” which would give Northern Ireland a veto to any changes on future arranges regarding the proposal. Boris has been busy it seems despite avoiding his Parliamentary duties due to the cancellation of business in Parliament. Today the PM was scheduled to face two hours of scrutiny from senior Tory backbenchers at a liaison committee meeting, but the prorogation of Parliament puts this on ice. Committee Chairwoman Sara Wollaston told the BBC last night “The prime minister is running away from scrutiny”. The data calendar remains light for sterling for the remainder of the week.

EUR

The euro had a relatively quiet session yesterday suffering some losses against a resurgent dollar. The lack of volatility in the single currency can be attributed to the upcoming European Central Bank policy meeting tomorrow where President Draghi is expected to announce a new stimulus package. The form it will take though has drawn much speculation from market participants, however. The inclusion of a new round of Quantitative Easing remains contentious, with an MNI story citing anonymous sources reporting that a delay of QE implementation was possible. The euro briefly rose on the news while fixed income sold off. On the other hand, a reduction in the deposit rate by 10 basis points to -0.5% seems a certainty, but the way in which the ECB tiers such a move to protect bank’s profitability remains grey.

USD

The dollar is up against most of the G10 currencies compared to yesterday’s open, after some weak Swedish inflation data sent regional currencies lower against the greenback yesterday morning, and interesting political and geopolitical titbits hit the news wires in the afternoon. US-China trade headlines were generally positive, with Chinese state media reporting that China was ready to offer substantial agricultural purchases to get a trade deal. The true stumbling block so far has been intellectual property provisions, which were left unmentioned, and perhaps could remain that way if the US administration looks for a way to climb down from the trade war in time for the 2020 election. US National Security Advisor John Bolton was sacked by President Trump in a tweet yesterday, triggering a rapid fall in crude oil prices. Bolton, despite having no military experience, was famously an advocate within the Trump administration of US military aggression, particularly against Iran. His departure appears to have been perceived as a relative decrease in the risk of conflict-related disruptions to crude supplies. Producer Price data will be released today at 13:30 BST, followed by Wholesale Inventories at 15:00.

CAD

An increase in housing starts and building permits over the last few months sent USDCAD to session lows yesterday before news struck that Donald Trump fired National Security Advisor John Bolton. Bolton’s dismissal sent oil prices lower as the removal of the trade hawk from Trump’s administration stripped another potential supply-side constraint from crude markets. The loonie couldn’t hold onto its highs of the day but remained in positive territory over the course of the session to post its third successive day of gains – the only G10 currency to sit higher against the dollar yesterday. Today, the Q2 capacity utilisation rate is released at 13:30 BST.

FX Elsewhere

The Scandies were the place to be in the G10 space yesterday as market volatility was subdued. Poor inflationary data from Sweden and reducing inflationary pressures in Norway sparked a Scandie led sell-off in the G10 space yesterday morning as expectations of Scandanavian rate hikes were put on ice. At the close of play, NOK and SEK fell 0.44% and 0.4% respectively, breathing some life into the G10 FX space.