Morning Report: 18 July 2017

18th July 2017 By: Ranko Berich

GBP Sterling was on the back foot against USD yesterday, but has recouped all of its losses overnight amid a broad selloff on the greenback. Political intrigue is in the headlines this morning, with Theresa May reportedly due to warn her cabinet against using the media to undermine each other, after Philip Hammond was the victim of leaks over the weekend. The politicking comes amid ongoing Brexit negotiations, which resumed this week. June’s inflation data released a few minutes ago clearly was a relief for the Bank of England, as it slowed down its pace from the previous month’s 5-year high. The data will also reduce the pressure on relatively flat wage growth.

EUR The euro has rocketed to a fresh 14 month high overnight against the US dollar, driven primarily by USD weakness. Yesterday’s final release of Eurozone Consumer Price Index data for June contained no surprises, with Core CPI up 1.1% year on year. For now, the euro continues to bask in relative strength compared to the US dollar, supported by firm fundamental data and rising expectations of monetary normalisation from the European Central Bank. The next major event for monetary policy won’t be until Thursday’s ECB press conference, but today at 10:00 BST the latest ZEW Economic Sentiment survey figures will be released for the eurozone and Germany.

USD USD went into yet another tailspin overnight, triggered by farcical developments from Republican lawmakers who abandoned their current efforts to replace Obamacare in favour of a new, simpler strategy of simply repealing the legislation and hoping to sort out a replacement at some stage in the future. Senate majority leader Mitch McConnell announced the change of strategy half an hour after President Donald Trump had tweeted “Republicans should just REPEAL failing Obamacare now & work on a new Healthcare Plan that will start from a clean slate.” The debacle creates further doubt about the plausibility of further USD-positive legislation such as tax reform, and the greenback took another major step lower against FX majors last night. Today’s US data releases will be Import Prices at 13:30 BST and the NAHB Housing Market Index at 15:00.

CAD The loonie took one furtive step backwards against USD yesterday, but quickly erased its losses overnight as USD weakness took hold of G10 currency markets. Foreign Securities Purchases of Canadian assets soared in May, fuelled mainly by purchases of Government debt instruments, perhaps reflecting international investors snapping up recently-elevated yields in CAD. No Canadian data will be released today.

UK news

  • FT: Trump suffers stinging defeat as Obamacare overhaul collapses Republicans turn to high-risk strategy of scrapping system without an alternative. Donald Trump suffered a stinging defeat on Monday night as Republicans abandoned their efforts to replace Obamacare, turning instead to a high-risk strategy of trying to scrap the system without having an alternative ready. The US president campaigned on a strident pledge to repeal and replace Barack Obama’s healthcare system, but after six months of torment the Republicans who took control of Washington this year conceded they could not manage it. The outcome will embarrass a party that has been wracked by internal divisions, with a rift between conservatives and moderates preventing it from notching up a first hoped-for legislative victory or making progress on other fronts.
  • Reuters: UK inflation surprises with June slowdown, easing pressure on Bank of England British inflation unexpectedly slowed for the first time since October last month, adding to the likelihood that the Bank of England will keep interest rates at a record low in August. Consumer prices rose by 2.6 percent compared with a year earlier, the Office for National Statistics said on Tuesday, down from a nearly four-year high of 2.9 percent in May. Economists had expected the rate to remain unchanged. The fall was the sharpest between any two months since February 2015, largely reflecting a fall in global oil prices, and there were signs of slowing price pressure in factories.