Morning Report: 18 June 2018

June 18, 2018

GBP.  Lenin once wrote that there are decades where nothing happens, and weeks where decades happen, and last week was closer to the latter in terms of FX, central banking and geopolitics. Sterling closed the week substantially lower against USD, but did strengthen against the euro. This morning’s political headlines are focussing on NHS spending, after Theresa May last week managed to pass a series of crucial votes on Brexit. This week’s main event for sterling will be the Bank of England’s rate announcement and press conference on Thursday, where no change is expected to rates.


EUR. The euro made gains against the dollar and sterling on Friday, but this did little to pare the losses it made against the pair over the week on the whole. Today, the European Central Bank will meet for the fourth annual ECB forum on Central Banking in Sintra, Portugal. The focus will be around the theme of price and wage-setting in advanced economies. This seems topical following Friday’s data release of Eurozone wide labour costs for Q1 showing an increase of 2.0% year on year from Q4 2017’s 1.4%. The main development in the eurozone over the weekend was the threat of political instability, this time within the economic powerhouse Germany. Angela Merkel, who has held office for an unprecedented 13 years, was challenged by her Interior Minister, and key government coalition partner, Horst Seehofer over her open-door approach in 2015 to migrants. Merkel’s alliance partner gave her two weeks to agree to turn away refugees at Germany’s borders who have already registered through other European countries.


USD. The dollar made further gains against the whole of the G10 currency board last week, with the main development for the dollar being the rate hike and change in forward guidance by the Federal Reserve. The Fed’s dot plot now signals a total of four rate increases in 2018, against three hikes previously. On Friday, the greenback posted losses against sterling, euro and Danish krone. Industrial production fell in May by 0.1% MoM with manufacturing output falling 0.7%. With little in the way of top-tier data for the USD, markets will be focusing on the developments of the US-China trade war and the unfolding of possible trade negotiations with key trading allies.

CAD. This week marks an important time for the loonie, more specifically Friday, with inflation figures released for May suggesting a rise in inflation to 2.0% and an OPEC meeting where the decision over increased supply will likely be released. This follows Saudi Arabia and Russia signalling their desire to unwind historic output limits last week amidst uncertain future supply. Last week, the loonie performed relatively poorly, nearly ending the week at the bottom of the G10 currency board, with most of its daily losses occurring on the Friday.

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