Morning Report: 02 August 2018

August 2, 2018

GBP. Finally, the day sterling has been waiting for all week arrives; Super Thursday. The rare occurrence, where the Bank of England releases their interest rate decision, an inflation report and Bank of England Governor Mark Carney takes questions from the press. With little top tier data, sterling investor’s attention has been firmly on today’s events, which may be the reason why GBPUSD was virtually unchanged yesterday. Money markets currently imply a 90.9% probability of a rate hike by the BoE to 0.75% at 12:00 BST, but should this hike prove dovish, previous sterling reactions suggest further fodder for sterling bears to feed on. With headline inflation above target alongside stable core inflation, and data firming in the run-up to today’s decision, Mark Carney looks like he may be locked in to giving the market what they anticipate and kick the ‘unreliable boyfriend’ title. Prior to this, at 9.30am BST, we have Construction data, though this is likely to have only a muted impact.


EUR. Euro lost ground against USD for the second day in a row yesterday, while it is also on the back foot this morning with little Eurozone data of significance to drive this move. The Final Eurozone Manufacturing PMI was the only data release of note yesterday, and this came in bang in line with expectations at 55.1. This morning saw Spanish Unemployment Change decrease less fast than expected in July at -27.1K after Spanish Unemployment hit the lowest level since 2008 earlier in July. Today at 10:00 BST the Eurozone Producer Price Index will be the most important data release, telling us whether trade tariffs and global growth are already translating into higher prices for producers.


USD. The greenback edged up slightly after the Federal Open Market Committee yesterday did not raise rates, but did acknowledge the higher US growth. It also subtly hinted that a fourth rate hike in 2018 may have become marginally more likely. Donald Trump meanwhile continues to fuel concerns over trade as he stepped up his rhetoric on China and shared his intentions to increase the proposed tariffs on $200 billion worth of Chinese goods from 10% to 25%. The stock markets in China have shed 4% on this news, but FX markets are still looking for direction on the back of this, not sure whether safe-haven flows into the dollar or added risks to the US economy should prevail in dollar trading. Today at 13:30 BST we have Unemployment Claims with Monthly Factory Orders being published at 15:00.


CAD. The loonie, like sterling, was flat as a pancake yesterday, only rallying 0.02% against USD. Canada’s Manufacturing PMI retraced slightly compared to last month and came in at 56.9 for July, which still indicates a very solid expansion in this sector of the Canadian economy. Today no Canadian data is set for release.


FX Elsewhere. Japanese 10 year Government Bonds rose to the highest level in 18 months, showing that markets are already making full use of the wider band the Bank of Japan said to allow on yields in its communications earlier this week. This can be a potential driver of JPY strength in the coming months, although the JPY rally this morning can also have been caused by concerns over trade, which have risen once again after the latest Trump comments.

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