After a week of poor data and compounding Brexit woes, GBPUSD saw its lowest weekly close since 1985 last week, while GBPEUR has reached fresh decade lows this morning before rallying slightly. There has been some ostensibly market-relevant newsflow, but little in the way of material new information. The Times and the Independent reported over the weekend that Parliamentary resistance to no-deal may take the form of legislation forcing the Government to extend the October 31st deadline, while the Telegraph reported that Labour MPs have been told to cancel leave and travel in the first two weeks of September. CFTC data for the week ended 6th August showed leveraged positions on GBP reaching levels of net shorts not seen since 2006. This week’s data includes Labour Market releases tomorrow morning, followed by CPI on Wednesday and Retail Sales on Thursday.


The selling pressure EUR is confronted with this morning against USD has already more than erased the gains the single currency made against the greenback on Friday. More importantly, the GBPEUR cross hit the lowest level since the Great Financial Crisis. The euro’s outperformance against sterling is not due to the merits of the Eurozone economy and blessings of the European project as a whole – no-deal Brexit risk is the main driver behind this. This is evidenced by EUR continuing to trade within close reach of the recent 2-year lows against USD and JPY. Italian bonds got whipped on Friday after Italian Deputy Prime Minister and League leader Matteo Salvini attempted to force a snap election, which kept EUR mostly unaffected, while 10-year Italian bond yields jumped by more than 20 basis points. Meanwhile, rating agency Fitch kept Italy’s credit rating at BBB on Friday with a negative outlook, citing extremely high government debt, low trend growth and continuing political uncertainty. Today at 10:00 BST we see German ZEW Economic Sentiment, German’s first Q2 Gross Domestic Product reading scheduled for tomorrow. A crucial Italian cabinet meeting this afternoon at around 16:00 BST will decide the fate of the Italian Government.


The dollar didn’t stand out much from the G10 currency board on Friday, but is on a tear this morning, with only JPY and GBP managing to escape the wrath of the greenback. On Friday the US announced it will hold off on new Huawei licences in a response to China’s pause in buying more US crops. This policy demonstrates China and US are drifting further away on trade, with the chance of a US-Sino trade deal before the 2020 US presidential election becoming a more remote possibility. Friday’s Producer Purchasing Index unexpectedly dropped for the first time in 7 months by 0.1%, taking some pressure of the solid price increases US producers are currently confronted with. This week brings ample data to us, with the Consumer Price Index data on Tuesday, Retail Sales on Thursday and Building Permits to close off the week on Friday.


The loonie had an interesting week last week, ultimately closing only marginally lower against the US dollar, after rallying from dramatic three month lows in the middle of the week. Friday’s labour market data was a mixed back, with headline job creation showing the first back-to-back net jobs losses since 2014, even as wage growth rose at its fastest annual rate since 2009. Given the dovish turn in central banks globally, the market was perhaps nervous in the run-up to the release and unwinding in job growth confirmed fears of a labour market slowdown. This is especially the case as the BoC doesn’t put too much weighting on the timely jobs report as opposed to the quarterly data in their wage common index, so the wage growth did little in changing the already known narrative that the BoC will remain neutral going forward.



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