Morning Report: 19 June 2018

June 19, 2018

GBP.  There was no Harry Kane to save the British pound in the dying minutes of yesterday’s session, as sterling found itself in a rut and had the lowest close against the dollar in seven months, while its performance against other currencies was far from convincing as well. Theresa May’s flagship Brexit legislation did not manage to pass through the House of Lords untouched yesterday evening as lawmakers in the unelected upper house attached a “meaningful vote” amendment to the bill. This means that Parliament can vote on any Brexit deal agreed between the UK and the EU, or on what should be done, in the event of no deal being reached. With little in terms of data yesterday, today and tomorrow markets can start preparing for the Bank of England rate announcement on Thursday. Although no rate hikes are expected this week, markets currently price in the chances of an August rate hike at 50.2%, with mixed data since the May meeting meaning the chances of a hike are finely balanced.

EUR. The single currency performed fairly well yesterday and advanced against most other G10 currencies, bar the NOK and the CHF. Political risk in Germany came into focus over the weekend as Angela Merkel’s CDU clashed with its Bavarian sister party CSU on immigration. These tensions originated from CSU’s displeasure with immigrants registered in other European Union countries crossing the German border, though the issue seems to be subsiding somewhat after Merkel agreed to look for a solution over the coming two weeks. The timeframe allowance, given to her by CSU, allows Merkel to voice the discussion with the EU Governing Council on the 28-29 June summit instead of calling an emergency meeting. Today Mario Draghi once again claims all of our attention with a speech about wages and prices at the European Central Bank’s Annual conference in Sintra, Portugal at 9:00 BST.

USD. The greenback experienced an uneventful day yesterday, with President Donald Trump’s trade talk continuing to drown out most other developments. Trump’s latest warning has been to China, against whom he has threatened an extra 10% tariff on $200 billion worth of Chinese goods, plus a similar additional amount if the Chinese choose to retaliate. Despite the spectre of additional sanctions, the Chinese have already signalled that they are nonetheless ready to retaliate, increasing the prospect of an all-out trade war developing between the two biggest economies of the world. As a result, haven currencies- where markets like to park their funds in times of fear or uncertainty- like JPY and CHF have seized the offensive this morning. Today at 13:30 BST sees Building Permits and Housing Starts as the main releases of interest.

CAD. The loonie continued to depreciate against the US dollar yesterday, with USDCAD closing at its highest point since June 2017. The prospects for the loonie aren’t overly encouraging either, with rhetoric heating up between Iran and Saudi Arabia regarding a supply increase at OPEC’s meeting in Vienna on Friday. Should oil supply increase, due to main oil producers like Saudi Arabia and Russia currently producing below full capacity, Canada’s current account will worsen from Q1 2018’s USD$-19.5bn, causing the loonie to depreciate further.

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