Morning Report: 20 June 2017

20th June 2017 By: Ranko Berich

GBP Sterling had a very quiet start to the week yesterday, trading in a very tight range against the euro, and retracing the small gains it had initially made against the US dollar. The pound has exploded in to life this morning though, dropping sharply as Mark Carney, the Bank of England Governor, gave a speech where he stated that he does not see the need for a rise in interest rates in the UK in the near future. Elsewhere, the first round of Brexit negotiations seem to have gone surprisingly smoothly. The UK had been petitioning that the terms of a trade deal with the European Union were negotiated at the same time as settling the divorce bill. The EU, conversely, wanted “substantial progress” on the divorce bill before entering trade negotiations. Despite the lead UK negotiator, David Davis, having predicted that this would be the “row of the summer”, the EU’s logic has appeared to have very quickly won through, eliminating the first of, albeit many, potential hurdles in the negotiations. Given that political uncertainty has been one of the heaviest factors weighing on the pound over recent months, the speed of which this issue has been addressed provides some small shoots of optimism.

EUR The euro saw little action against sterling yesterday, though lost half a percentage point against the USD due to dollar strength. The German Producer Price Index showed a 0.2% month on month decrease this morning, slightly lower than the 0.1% decrease which was expected. Jens Weidmann, president of the Deutsche Bundesbank, spoke yesterday and praised the willingness of newly elected French president Emmanuel Macron to reform the economy. These respectful words and well-aligned Franco-German relations were a welcome showcase of the increased political peace, which turbulent election campaigns in France and the Netherlands had threatened earlier this year. Today at 9:00 BST we welcome the Eurozone Current Account numbers of April which will tell us all about the state of the European Trade Balance.

USD Federal Reserve Bank of New York President William Dudley, a voting member of the Fed’s interest rate setting Open Market Committee, put himself on the same side as Fed Chair Janet Yellen yesterday, stating that he also expects inflation to rise due to the currently tight labour market in the US. The increased bullishness of Fed members regarding further interest rate hikes helped the dollar rally against most of its major counterparts by end of the day. Today we have the Quarterly Current account coming out, expected to have an increased deficit. Today, we will also hear from fell FOMC voting members Kaplan and Fischer.

CAD The Canadian loonie saw some fairly mild intraday volatility against the US dollar, but ended the day fairly flat relative to its opening price. The intraday volatility seems related to similar movements oil made during the day. Overall, the loonie is holding on to the gains it made last week after a hawkish message of its Central Bank Senior Deputy Governor Carolyn Wilkins. At 15:30 the Canadian month on month wholesale sales for the month of April will be released for which a small increase of 0.5% is expected.