Morning Report: 22 August 2017

22nd August 2017 By: Ranko Berich

GBP Sterling was utterly routed by the euro yesterday, reaching its lowest level against the single currency in seven years, though it did pop marginally higher against USD. However, political posturing from the Government around ongoing Brexit negotiations is doing nothing to increase longer term confidence in sterling at the moment. Position papers released by the UK government earned a stiff rebuke from EU officials who reiterated their position that the future relationship of the EU and UK can only be negotiated after the terms of “divorce” have been mostly settled. Today at 11:00 BST Industrial Order Expectations will be released by the Confederation of British Industry.

EUR The euro strengthened sharply yesterday, only paring its gains slightly against the US dollar this morning as anticipation continues to build for this week’s Federal Reserve Symposium in Jackson hole, Wyoming. This morning’s data will include the ZEW Economic Sentiment survey, a widely followed measure of optimism among institutional investors and analysts. The German sub index of the survey is considered particularly influential, and is expected to drop further after a period of exuberance over the previous months.

USD USD was generally on the back foot yesterday, as large parts of the nation enjoyed a historic solar eclipse, including President Trump- who briefly did so without eye protection. The greenback has shown signs of a revival this morning, especially against JPY. An ostensibly minor speech was given by Treasury Secretary Steve Mnuchin, who was introduced by Senate Majority Leader Mitch McConnell, who between the two of them strongly refuted the prospect that the legislature would fail to raise the nation’s debt ceiling. The debt ceiling is a legislative limit on the government’s nominal total debt level that must be periodically expanded, and was a cause for significant grandstanding by Republican lawmakers during the Obama years. Elsewhere Trump gave a prime-time speech in which he announced continued US military involvement in Afghanistan, where the 16 year has has become the longest military conflict in the nation’s history. Today at 14:00 BST the House Price Index will be released.

CAD After starting the day on the back foot, the loonie’s fortunes reversed and USDCAD ultimately closed lower, despite a soft print for Canadian Wholesale Sales which contracted 0.5% in June. Today at 13:30 BST an even more important release, monthly Retail Sales, is scheduled.

UK news

  • FT: Donald Trump warns against hasty withdrawal from Afghanistan  President avoids details but insists new war plan will prevent vacuum for terrorists. President Donald Trump has revealed a new strategy for Afghanistan that commits to maintaining US forces in the war-torn country while increases pressure on Pakistan to crack down on havens used by terrorists. In a prime-time speech on Monday night, Mr Trump said his instinct had been to withdraw from Afghanistan but that he changed his mind because of concerns about creating a vacuum for terrorists. But he stressed that US support was not a “blank cheque” and that Americans were “weary of war without victory”.
  • Reuters: Britain’s current account deficit was bigger than thought in 2015 – ONS Britain’s current account deficit, the largest of any major economy last year, was even bigger in 2015 than previously thought, according to new estimates from the Office for National Statistics. The current account deficit has been in the spotlight since last year’s vote on leaving the European Union, and although it has narrowed recently is not far off levels that would trigger a currency crisis in a less developed economy. Bank of England Governor Mark Carney said in the run-up to the referendum that Britain was reliant on the “kindness of strangers”, highlighting how the country needed tens of billions of pounds of foreign finance a year to balance its books.