Morning Report: 11 September 2017

11th September 2017 By: Ranko Berich

GBP The pound opened lower against the dollar as the greenback gains momentum amid risk on sentiment where safe havens fell and equities futures rose over the Asian session. GBPEUR has strengthened over the last two weeks as sterling continues to shrug off negative headlines about Brexit, which, in the absence of any major progress actually being made, is not having a significant impact on GBP crosses for the time being. This week’s main event is the Bank of England’s interest rate decision, although it is preceded by critical inflation and labour market data on Tuesday and Wednesday respectively. Inflation is expected to tick up to 2.8% year-on-year and wages are also expected to rise. However, no action from the BoE is expected on Thursday.

EUR The euro is down against the dollar and sterling as risky assets are rising this morning whilst safe havens and the euro are down. The single currency however remains out of the spotlight this week. Markets are now focused on the German elections that take place on September 24th. Although no surprise is expected and Merkel should consolidate a strong victory, some sort of market uneasiness could be seen over the next two weeks as data will be scarce and the euro remains in multiyear highs against the dollar and sterling.

USD The dollar gapped higher on the week’s opening as a much expected North Korean missile never made an appearance, and tropical storm Irma was not as destructive as initially feared. Irma’s damages are expected to have ascended to around $50 billion versus the $200 billion calculated in advance. As a result, interest rates and stock index futures are sharply up in the US, following a global broad risk on movement. After a few weeks underperforming, the dollar could gain additional momentum and recover some of the lost ground over the next few days. Towards the end of the week however two important price indexes are released. The Producer price index and the consumer price index are both released on Wednesday and Thursday, and it is expected to see increases. Retail sales data will be released on Friday.

CAD The loonie is strengthening against all G10 currencies this morning as momentum continues after last week’s interest rate hike. Labour market data on Friday was positive. The unemployment rate fell to 2009 lows at 6.2% and the number of jobs created jumped above expectations. However, the loonie fell after the release as the number of full time jobs created disappointed. Nonetheless, the headline figures speak by themselves and the loonie continues to rally across the board. Housing starts data will be released at 13.15 BST.

UK news

  • FT: BoE to step up warnings against underestimating rate rises. Central bank to challenge market complacency that cheap money cannot last. The Bank of England will this week step up its warnings that households, businesses and investors are underestimating how soon interest rates will rise. A strong body of opinion in the central bank, including the governor, believes that the economy is more vulnerable to inflation, so even a small improvement in its forecast for growth would require higher borrowing costs to stave off rising prices. But BoE officials acknowledge that they have so far struggled to get this message across to the public. Investors do not believe the bank’s hawkish rhetoric; the City now thinks it will have to wait longer for an interest rate rise than it did a month ago.
  • Reuters: UK economy picking up, rate hike possible in early 2018 – NIESR. Britain’s Brexit-bound economy has picked up a bit of momentum and the Bank of England might raise interest rates in early 2018, the National Institute of Economic and Social Research (NIESR) estimated on Thursday. Britain’s economy likely expanded by 0.4 percent in the three months to August, speeding up from 0.2 percent in the three months to July but below its long run trend of quarterly growth of about 0.6 percent. “Looking ahead into the second half of this year and beyond, we see the economy rebalance towards international trade in response to strengthening global growth and a weaker currency and away from domestic demand,” Amit Kara, head of UK macroeconomic forecasting at NIESR, said.