News & analysis

GBP

Sterling traded flat yesterday, amid low volatility in FX markets and reports of low trading volumes. A survey of independent forecasts compiled by HM Treasury showed a strong consensus expectation that the UK economy would rebound strongly in the second half of this year, completing a “v-shaped” recovery of the sort discussed by the Bank of England’s chief economist Andy Haldane. The average forecast still envisages a 10% contraction in GDP this year, but considering the depths of the trough in activity in Q2 this implies record-breaking growth in consumer spending and other GDP components over the second half of this year. Education, which saw its recorded economic output plummet when schools were closed, will be a big contributor. Teaching unions and local authorities will not oppose efforts to re-open schools next week, according to Downing street. Today at 11:00 GMT, the Confederation of British Industry will release its sales survey.

EUR

The euro is trading flat against the dollar this morning, remaining relatively steady over the last week of August as risk appetite got a boost from progress in US-Sino trade developments, while headlines on a virus vaccine likely also squashed the dollar down. This morning’s economic calendar included an upward revision of Germany’s Q2 final GDP figures, providing a level of support for the euro. Markets now await the German IFO Business Climate, Expectations and Current Assessment index at 09:00 BST as these are leading indicators for the German economy. The current assessment is projected at 87.0 from 84.5 in July, and the IFO business climate is expected to print at 92.4 compared to last month’s 90.5 – all suggesting an improved view on the German economy. Also in Germany, Chancellor Angela Merkel called out Moscow on the poisoning of opposition leader Alexei Navlany and demanded full transparency, marking a sharp escalation in tensions between the West and the Kremlin and possibly a return of sanctions threats.

USD

The greenback fell against most of its G10 peers after news reports that US and Chinese trade negotiators discussed the phase-one trade deal on Monday evening, with the US saying that both sides agreed to create conditions to save the deal. Beijing is currently far behind where it needs to be to meet its promises to increase purchases from the US in agricultural, energy and manufactured goods, and would need to buy around $130bn in H2 2020 to comply with the original terms. China has made some progress on its commitments however – it removed foreign equity caps in insurance, securities and futures, and modified its regulations to allow for imports of various US farm and food products. US oil exports to China are also set to reach a record in September, judging from the provisional bookings. The inkling of a Covid-19 vaccine also helped to boost sentiment after Moderna Inc. announced to provide 80 million doses of its experimental coronavirus shot to the European Union, adding to signs of progress in developing a treatment. In terms of data, August US consumer confidence figures are eyed today. Unlike the business sector, consumer confidence has not seen much of a rebound in the US, and any sharp surprise to the downside could prove to further weaken the dollar before Thursday’s Jackson Hole speech from Federal Reserve Chair Jerome Powell.

CAD

Having steadily appreciated overnight and during the morning, the loonie had a reversal of fortune around midday yesterday and began to weaken against the US dollar, failing to pare back any of the losses overnight. Today at 13:30 BST, Statistics Canada will release monthly corporate profits data, followed at 18:30 by a speech from the Bank of Canada’s Lawrence Schembri.

 

 

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