Morning Report: 14 August 2018

August 14, 2018

GBP. The markets started today relatively calm as the Turkish lira depreciation has taken a back foot. With risk-off sentiment slowly unwinding in Asian trading this morning, sterling has taken the front foot ahead of labour market data released at 09:30 BST. The ILO measure of unemployment has reported a multi-decade low in the UK labour force this year and June’s release is expected to remain at the 4.2% level. Average weekly earnings will be the key measure looked at by market participants. Despite record lows in unemployment, wages have yet to show fast growth, with real earnings only growing 0.1%. This is expected to show no change as Average Weekly Earnings for the 3 months leading up to June is forecast at 2.5% still. Any positive surprises in the data released today will likely extend the sterling rally kicked off this morning.

EUR. The euro has had a rough few days of late, as speculation over European Banks’ exposure to the TRY crisis hampered the single currency’s performance. With today’s Eurozone data not outperforming, except for German Gross Domestic Product for Q2 coming in just above forecast at 0.5%, the euro has started today’s session relatively flat but still resistant against the rallying dollar. With the Eurozone-wide reading of GDP released at 10:00, an increase in growth from the forecast and previous 2.1% YoY may give the euro all the reason it needs to continue its current minor rally. Although it must be noted that developments in TRY will likely overshadow the Eurozone data releases.

USD. The dollar surged again yesterday and the period of dollar strength looks to continue again this morning as JPY, one of the main components of the broad dollar DXY index, starts to post losses as the market’s risk appetite increases. The Fed’s quarterly outlook on consumer borrowing and indebtedness will be released today with July’s Import and Export prices released at 13:30 BST. A slight uptick in import prices is expected, due to tariffs taking their toll, with the import price expected to show 4.5% growth YoY in July. Market movements are still dominated by the general risk appetite due to developments in Turkey, and data has recently taken a back seat, but with the lira stabilising data, releases may begin to dictate price action yet again.

CAD. With no top-tier data released until the Consumer Price Index on Friday, the loonie’s price action has been dominated by the dollar move, of which it has performed relatively well – posting a 0.05% gain yesterday and starting today on the front foot. With much speculation over the timing of the Bank of Canada’s next hike, the loonie has performed well in times of uncertainty due to the BoC being one of the only hawkish G10 banks. Money markets currently imply a 26.8% probability of a hike to 1.75% in September, whilst the consensus tends to suggest an October hike is more likely at 54.3%.

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