Morning Report: 20 July 2018

July 20, 2018

GBP.  GBPUSD has been teetering on the precipice of fresh 2018 lows all week, as political risk has built, and yesterday’s release of underwhelming Retail Sales figures for June added the cherry to the top of an unappetising cake, causing sterling to eventually reach the lowest level since September last year. Last month’s Retail Sales came in 2.9% higher than the previous month, but the World Cup didn’t stimulate their growth as much as expected due to non-food store sales dragging on the headline figure. When compared to May’s reading of 4.1%, which was boosted by a double seasonality effect, it makes for bleak reading for sterling investors – whose sentiment was already sour. However, a patch of dollar weakness in the late afternoon saw GBPUSD pop its head above yesterday’s lows; where is has ultimately stayed since. Little data is released for sterling today, but following new Brexit secretary Dominic Raab’s meeting with Michel Barnier, the EU negotiator on Brexit, the UK’s withdrawal from the EU is likely to dominate today’s sterling orientated headlines.

EUR. Euro let other currencies have all the action but kept the gains for itself on a day in which virtually nothing happened for the single currency. In light of this, developments elsewhere made it stand out favourably. The most notable headline for euro was that the European Union is preparing a new list of American goods to be hit with tariffs if the trade mission to Washington fails to persuade the American president to forego on new tariffs on EU goods. This morning at the Eurozone Current Account gets published at 9:00 BST.

USD. The greenback took a deep and wild plunge yesterday after President Trump questioned the latest Federal Reserve’s rate hikes, and made further comments about how the recent dollar strength puts the US at a disadvantage. In an interview with CNBC Trump commented he is “not thrilled” by the Fed’s recent actions and further added, “I don’t like all of this work that we’re putting into the economy and then I see rates going up”. It should be noted though that the independence of the Fed is embedded through two centuries of democratic traditions, with all the checks and balances that go with it. Nevertheless, it is concerning Trump once again seems to conduct his presidency by stirring up conflicts in many areas, with his confrontational approach possibly hurting US interests more than it advances them. In the background of all of this Weekly Unemployment claims surprised in a positive sense once again with a lower reading at 207.000 for last week, while the Philly Fed Manufacturing Index exceeded expectations as well with a score of 25.7. Today’s data Calendar remains empty apart from new acts on the highest stages of global politics with an OPEC and a G20 meeting scheduled.

CAD. The loonie continues to be lost for direction, fluctuating around the same level it has presided over the last few days. Yesterday’s broad dollar strength, which started to dwindle late in yesterday’s session, saw the loonie lose 0.78% to USD. Today sees the defining data release this week for the Canadian dollar, with Retail Sales for May released alongside the Consumer Price Index of inflation for June at 13:30 BST. The loonie has started today’s session on the front foot in anticipation of today’s releases, where Retail Sales are expected to grow 1.0% in May from Aprils -1.2% month-on-month, whilst CPI is expected to stay stable at 1.9% – just below the Bank of Canada’s 2.0% mid-point inflation target.

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