Morning Report: 20th September 2018

September 20, 2018

GBP. Sterling spiked yesterday morning after August’s Consumer and Producer Price Indices came in hot. August’s CPI exceeded expectations of a 0.5% MoM increase and came in at 0.7%, pushing the YoY figure up to 2.7%. Most notably, the Core CPI reading popped its head above the 2.0% level and confirmed the Bank of England’s August rate hike was just. However, with the Salzburg summit starting yesterday evening, sterling’s positivity from the CPI release proved unsustainable. President of the European Council, Jean-Claude Juncker, explained that   Brexit deal was “far away”, with further commentary from EU officials likely today as the summit continues. The pound eventually posted minor losses against the dollar yesterday, but following on from hot data releases, this morning’s Retail Sales release at 09:30 BST may see sterling spike yet again.

EUR. The euro experienced a quintessential choppy session yesterday with several short rallies and slumps continuing to chase each other’s tails throughout the day, eventually the currency closed flat against USD on a day on which a small miss on the Current Account was the biggest event. Today Eurozone Consumer sentiment by Eurostat will be the main economic event, while reactions of European leaders on the Italian intentions to let the government debt increase may also put fixed income markets in motion, which can impact the euro.

USD. Yesterday proved quite uneventful for the dollar which incurred further losses from its G10 counterparts. The DXY index, which is composed of a weighted average of its major G10 currencies, continued its downtrend and has started this morning on the backfoot. Yields on US government debt continue to rise, which normally causes and inflow into the dollar as investors seek to benefit from the higher returns on the safe investment, but this hasn’t aided the dollar just yet. Meanwhile, trade tensions continue to simmer in the background as a trade agreement still hasn’t been reached with Canada and US-China relations continue to deteriorate. Today, the Philadelphia Fed releases its Business Outlook Survey at 13:30 BST for September and at 15:00 BST Housing data is released.

CAD. The loonie posted further gains against the dollar yesterday as WTI crude continued its rally above $70 a barrel and talks with the US on a renewed trade deal speed up. Chrystia Freeland, the Canadian Foreign Secretary, has been meeting with the US Trade Secretary Lighthizer as the deadline for a new deal quickly approaches. US Congress convenes at the end of the month prior to November’s mid-terms, and if no deal has been put through Congress then it looks unlikely that a trade deal will be implemented this year. Freeland is back in Washington today, with a press conference expected later this afternoon.

FX Elsewhere. Emerging markets bounced back yesterday after periods of broad depreciation. The EM rally was spearheaded by the Turkish lira, which has depreciated some 39% so far this year and was followed by ZAR and ARS. This is in spite of rising US yields that normally leads to EM weakness as the relative reward for holding riskier securities falls in light of higher returns on US securities

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