Morning Report: 15 June 2018

June 15, 2018

GBP.  Sterling managed to stem its losses against the greenback relatively well yesterday after rallying in the morning off the back of strong Retail Sales data. The British consumer has continued to outpace forecasts with their spending, as yesterday’s UK retail sales for May showed 3.9% growth year on year, which is more than double last month’s pace. May’s average temperature was 1.5 degrees above the 1981-2010 average and came after a frigid February and March. As the ONS itself said, it’s possible that unusually cold weather followed by heat waves caused consumers to delay their purchases until later in the year. After a busy week for sterling, it has lost out to the dollar so far but made ground against the euro, but next week’s Bank of England meeting may benefit sterling as market participants have previously predicted the central bank’s moves.

EUR. The euro closed substantially lower yesterday after the European Central Bank announced that it will reduce and end its asset purchase programme this year, but would not raise rates until after summer 2019 at the earliest. Despite yesterday’s euro weakness the fact that the ECB was willing to give such explicit and proactive guidance on tapering is unusual and points towards a hawkish change in the balance of opinion on the Governing Council. In the past, the ECB actively sought to avoid clearly commenting on future action until it had enough data to make a decision. Despite a growth slowdown and increased geopolitical uncertainty, this approach has clearly gone out the window. The focus now will be on if the recent slowdown in Eurozone data deepens, and, if so, how the ECB reacts. Today at 10:00 BST Eurozone Consumer Price Index for May will be released, with the final reading expected to be 1.9% YoY.

USD. The dollar posted gains against the whole G10 currency board yesterday, with the main news story focusing on Donald Trump imposing tariffs on tens of billions of Chinese goods as early as Friday. Trump met with several cabinet members and trade advisers and was expected to impose tariffs on at least $35bn to $40bn of Chinese imports an industry official said. With EURUSD posting significant losses yesterday and having a major weighting within the DXY index, the dollar index rallied significantly with it breaking fresh highs for the year this morning.

CAD. The loonie performed relatively well yesterday compared to the rest of the G10 currencies but nonetheless surged to a fresh low for the year this morning. In the news, Italy is refusing to ratify a European Union free-trade accord with Canada as the populist government aims to upend decades of consensus in Brussels. This comes as Canada is aiming to realign allies following trade spats with the US, with the European bloc aiming for one of its most ambitious commercial deals to date. Today at 13:30 BST April’s Manufacturing Sales are released, with a decline from 1.4% in March to 0.6% in April forecast.


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