Morning Report: 21 August 2018

August 21, 2018

GBP. In a week that is light on data for sterling, GBPUSD was dictated by the spontaneity of Donald Trump and his comments. Yesterday’s target was Jerome Powell and the Federal Reserve, and comments casting scepticism over the current hiking path by the central bank caused the dollar to weaken against the pound in the afternoon of yesterday’s session. Today, new Brexit Secretary Dominic Raab will meet his European counterpart Michel Barnier in Brussels for another round of Brexit talks. Under strict instructions from Olly Robbins, the civil servant who has been at the forefront of the UK’s negotiating position, Raab will step up the pace of talks with a spokesman saying talks are continuing “at full speed, 24/7, seven days a week to reach an agreement.” GBPUSD has started this morning’s session relatively positive, building on the last 3 days of gains.

EUR. The euro gained for the fourth day in a row against the dollar yesterday and is on the offensive this morning as well, recovering from year lows set earlier last week. According to option markets, this may prove to be only a short breather for euro, as the ratio between the call and put options on EURUSD still see the cross trading lower in one month. The economic calendar remains empty for the Eurozone today.

USD. Late in the day, the US dollar experienced a patch of volatility after unconfirmed reports emerged that Donald Trump had complained about Jerome Powell not keeping rates low. Almost immediately after, Atlanta Fed Chair Raphael Bostic said in a speech that the flatness of the US yield curve is a concern, and suggested he would avoid hiking rates such that the yield curve became inverted. US sovereign bonds usually form a steepening “curve”, whereby short-dated securities offer lower yields than long-dated ones. Recently, the spread between the two has narrowed, and the curve has flattened, traditionally – but not always – a sign of impending economic slowdown. The dollar slipped off the back of these comments, and after 3 days of broad losses, the DXY dollar composite index fell back into its recent trading range.

CAD. The loonie benefitted from yesterday’s dollar weakness, but with USDCAD finding reasonable support, the Canadian dollar didn’t capitalise on the greenback’s weakness as much as its G10 peers. No top-tier data was released for the loonie yesterday, but the Deputy Governor at the Bank of Canada Carolyn Wilkins spoke at a panel in Frankfurt and reinforced the additional impact monetary policy has in Canada due to the high indebtedness of the consumer. Today at 13:30, Wholesale Trade Sales are released for June.

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