Sterling is lower this morning, amid a renewed effort by Boris Johnson to convince EU leaders to cave to his demands that the Irish backstop is removed from the Brexit withdrawal agreement. The Prime Minister has written an open letter to Donald Tusk rejecting the backstop and asking for new arrangements. The only concession of note in the letter was subtle: an offer to replace the “backstop” with “commitments”, so long as they were not inconsistent with the UK’s demands. EU sources were quick to reiterate the Union’s previous refusal to renegotiate. It seems possible that if the EU is willing to hand Johnson a public victory by scrapping the backstop, Johnson would be willing and able to make “commitments” to an extent that both the UK Parliament and EU are happy with. But with the October 31st deadline fast approaching, this prospect will need to become more plausible before sterling enjoys any rally. This morning’s main release will be the Confederation of British Industry’s Industrial Order Expectations at 11:00 BST.


As talks about possible German fiscal stimulation faded into the background, the euro tip-toed back towards levels in the direct vicinity of two-year lows against USD. The softer Final Consumer Price Index reading for the month of July then provided another nail in the coffin for the single currency as the CPI figure fell to 1.0%, from 1.1% expected. The June Current Account then completely sealed the lid on euro’s day as it crashed to a surplus of €18.4 billion, compared to €30.3 billion in May. As these figures can be quite volatile, this isn’t the end of the world, though it does suggest the external surplus is falling towards 2.5%-3.0%, down from 3.4% 12 months earlier. Germany’s Producer Price Index was the only notable data release for today, coming in at +0.1% in July, stronger than the 0.4% in the month before. Italian politics, as always, may provide the action that can put markets on the move on such a slow day, as Prime Minister Conte will address the Senate at 13:00 BST in a response to Interior Minister Matteo Salvini has left the coalition. Conte may face a vote of no confidence or resign, leading to General Elections in October, or potentially even a coalition between the far-left Five Star Movement and the centre-left Democratic Party.


A strong sense of Groundhog Day took hold of markets yesterday as President Trump urged the Federal Reserve once again to cut rates, the US walked back some trade measures against China, while in the background the US and Iran continue to clash about an oil tanker, while Hong Kong continues to see record protests. Observing from the sidelines its unclear whether the greenback was confused, or simply unimpressed, as it continued to trade within a tight trading range. Trump demonstrated his fine command of doublespeak on Twitter as he said the US is “doing very well with China, and talking!”, but also wrote he is not ready yet to strike a deal with China on trade. For the time being, the US has granted Huawei another 90 days exemption for some business activities in the US, which took the edge of the latest risk-off moves. Today no US data of any substance is being released, while markets prepare for the Federal Open Market Meeting Minutes released on Wednesday and the annual Fed conference in Jackson Hole, Wyoming, that starts on Friday.


The loonie seemed on track for another day of gains yesterday morning, but things fell apart in the evening and USDCAD is again trading near the month’s highs this morning. Broad US dollar strength combined with a lack of action in crude oil prices were the likely contributing factors. Manufacturing Sales data will be released today at 13:30 BST, with a sharp contraction widely expected in June after May’s bumper 1.6% growth.



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