Sterling was unaffected by yesterday’s U-turn in global risk appetite, which saw emerging market currencies rally and havens such as JPY and CHF sell off after the US ostensibly retreated in its trade war with China. The lack of move in sterling is telling in itself, and together with the lack of an appreciable rally in the pound after yesterday morning’s solid labour market data, strongly suggests that sterling is trading on a single issue: Brexit. A popular joke in markets and media circles has recently been that sterling is an emerging market currency that is affected by wider developments in global risk appetite, complete with well performing sports teams, a current account deficit, and substantial political uncertainty. Yesterday’s lack of reaction to a clear “risk on” move in the afternoon and good data in the morning proves that this is not the case, and sterling is indeed a one issue currency. Consumer Price Index data will be released today at 09:30 BST.


The euro weakened yesterday, as investor demand for safe havens eased as the US-China trade war was seen as de-escalating. Similarly to sterling’s lack of reaction to good data, the euro also failed to sell off noticeably on the release of utterly dismal ZEW survey data in the morning.The survey bears some brief examination nonetheless. The index that tracks expectations among the surveyed financial experts fell to -44.1, the lowest since 2011 and far worse than expected. US-China tensions and Brexit were two of the leading causes of the malaise. The release is a grim portent for today’s release of German Gross Domestic product for the three months to June, which showed a contraction of 0.1%. Today at 10:00 BST Gross Domestic Product, Unemployment and Industrial Production figures will be released for the Eurozone as a whole.


The dollar strengthened against havens such as JPY and CHF yesterday, as well as the euro, but weakened against the Yuan and many emerging market currencies. The move was driven by a substantial and sudden improvement in investor risk appetite after US-China tensions seemed to cool, as the US announced a significant retreat from Trump’s latest escalation of the trade war. Implementation of the latest round of tariffs will be delayed for some consumer goods. Trump himself acknowledged that fear of political fallout was behind the retreat, saying “We are doing this for the Christmas season, just in case some of the tariffs would have an impact on US consumers”. Although the news was greeted with relief, a permanent solution to US-China tensions remains distant, and another flare up in the future seems likely, particularly given that Chinese authorities may view this latest retreat as a sign their strategy of retaliation and persistence is working.


The loonie was exceptionally volatile yesterday, at first coming under heavy pressure, before rallying in the afternoon on easing US-China tensions. Crude oil prices also surged on the improvement in risk appetite, although the major crude benchmarks have since pared back their gains as an oil industry report showed crude inventories rising. Official US inventory data this afternoon at 15:30 BST will therefore be an important release for both crude oil and the loonie.


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