Sterling had a brief flurry of strength yesterday as reports emerged that European Commission President, Jean-Claude Juncker, said he is doing “everything” to prevent a no-deal exit. Irish Prime Minister Varadker and German Chancellor Merkel also said they are planning on meeting UK PM Johnson at the sidelines of the upcoming UN meeting in New York to “try and get a deal”. The increased interest by EU officials and the lightening tone has helped sterling hit highs not seen since July 15th and the positive sentiment has spilt over into this morning’s session. Elsewhere in yesterday’s session, retail sales for August marginally missed expectations coming in at 2.2%, but a revision in July’s reading from 2.9% to 3.1% softened the blow for cable. Also, the Bank of England released their latest monetary policy statement yesterday, which unsurprisingly added little extra from the meeting prior. Brexit remains the key tipping point for the UK economy and has hamstrung the bank into adapting policy due to the extreme impacts each scenario could have on inflation and growth. Although, it must be said that the central bank sounded more dovish at the margin than in their August meeting. Finally, the supreme court announced yesterday that a decision on the legality of Johnson’s proroguing will be released early next week.
The single currency has been trading up over the last few days following a broad sell-off on Wednesday resulting from the Federal Reserve meeting. The data calendar and headline news have been thin in the Eurozone, with ECB’s Lautenschlaeger providing the majority of the headlines. The German central banker spoke in New York and said the Eurozone economy and financial conditions are excellent while stating much of the fragilities are being imported. The central bank member approved the latest stimulus by the ECB and reiterated Draghi’s comments that fiscal stimulus is now needed. Lautenschlaeger stated that the expansive fiscal policy needs to be conducted in a responsible way, targeting areas that will have a medium to long-term growth impact.
The dollar traded with little clear direction yesterday, losing ground to sterling and making marginal losses to CHF and JPY, while making some minor gains elsewhere. Some semblance of normalcy returned to money markets yesterday, as the rate for overnight repurchase agreements – a form of secured lending between large institutions – fell in line with Wednesday’s rate cut. The New York Fed again provided liquidity to this market with an oversubscribed $75bn repurchase operation. US and Chinese officials met in Washington to discuss trade, although few meaningful headlines emerged. A Chinese delegation will reportedly go on a tour of American farmlands next week – underlining the extent to which both sides seem focussed on Chinese purchases of Agricultural goods. Talks will continue today, with an aim of lining up productive meetings for senior officials in October.
From worst to best – the tale of the loonie. The Canadian dollar was the best performing G10 currency against the greenback yesterday, after sitting bottom of the rankings only one day prior. Reports claimed that Saudia Arabia asked Iraq for 20m barrels of oil yesterday and the headlines sent WTI crude prices 2.1% higher, however, Saudi officials quickly denied this claim and oil closed marginally lower on the day. The loonie didn’t follow suit and posted daily gains, and with WTI up another 1.2% today, a floor is firmly placed under the petro-currency. Today, retail sales data is released at 13:30 BST with an uptick from 0.0% to 0.6% MoM expected.