Morning Report: 28 August 2018

August 28, 2018

GBP. Sterling benefitted as the previous period of dollar strength continued to unwind, but posted losses against the euro; GBPEUR reached fresh year-to-date lows. August’s rate hike by the Bank of England has done little to knock souring investor sentiment over sterling, and with little data, for the week the pound may continue to be bashed around by markets. This week’s main focus will be on the Conservative party’s annual conference in Birmingham which begins on Thursday. Factions within Theresa May’s party, along with a possible leadership battle in the form of Boris Johnson, has previously put pressure on sterling. This theme may continue if the threat re-emerges at the conference this week.

EUR. The euro benefitted yesterday from strong survey data and improved sentiment around trade, which send the single currency towards the first ranks of the G10 currency board. The German Ifo Business Climate solidly beat expectations thanks to what seems to be a truce in the global trade war and came in at 103.8. This is the highest level in five months, although still much below the record levels seen around the start of the year. Today markets await the M3 Money Supply at 9:00 BST.

USD. The reversal of safe haven flows after the US and Mexico agreed on their bilateral part of a new NAFTA treaty dragged the greenback down in its stream, having it underperform against all other major currencies. This development fits in well with the view that Trump first spews strong rhetoric, which later proves more of a negotiation schmuck as he is actually willing to come to a deal at the negotiation table. Being the master of framing he is, Trump will likely come up with a nifty non-NAFTA name for the new treaty to appear to have held up his campaign promises of getting rid of the agreement that’s unpopular with his base. Today at 13:30 BST the Trade Balance is scheduled for release, followed by the Conference Board Consumer Confidence at 15:00 BST.

CAD. The loonie was one of the main beneficiaries of the dollar weakness yesterday and made gains on headlines that the US and Mexico were close to negotiating a revamped bilateral trade deal. Nevertheless, Canada is still not out of the woods as no trade deal is in the pipeline for them at the moment – but their foreign minister leads talks in Washington today. This follows the release of the call minutes by the Canadian Prime Minister’s office stating that Justin Trudeau and his US equivalent Donald Trump had a “constructive conversation” about the talks on Monday.

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