Morning Report: 31 July 2018

July 31, 2018

GBP. Sterling had an uneventful day yesterday, drifting slightly higher against the US dollar while losing ground to the euro. The Bank of England released money and credit data, which showed headline M4 Money Supply falling by 0.3% in June. Net lending to individuals remained high, as did Mortgage Approvals, indicating UK consumers remained willing to borrow and spend, consistent with recent retail sales figures.

EUR. Euro strengthened against the dollar in the run-up to today’s busy economic calendar, despite Flash German and Spanish inflation data being quite soft. The German July Flash Consumer Price Index came in at 2.0% annualized, below the 2.1% expected while the Spanish equivalent was also unable to meet expectations, at 2.3%. The meeting between US President Donald Trump and Italian Prime Minister Guiseppe Conte stayed below the radar of currency markets, with Trump praising Conte on his tough migration policies as the main headline. Today at 10.00 BST market participants will be glued to their screens with both the First Reading of the Eurozone Q2 Gross Domestic Product and the July Flash CPI for the entire euro area on the agenda.

USD. The greenback saw broad weakness yesterday as investors braced for this week’s central bank events. Wilbur Ross, the US Trade Secretary, added to tensions by hinting the US will not back down from a trade confrontation with China. Today at 13:30 BST the Personal Consumption Expenditure Index – the Federal Reserve’s favourite inflation gauge – is set for release; the last first-tier release before the Federal Open Market Committee Rate announcement on Wednesday evening.

CAD. The loonie reached its strongest point against USD in more than a month yesterday but saw some volatility overnight as the Bank of Japan’s rate announcement temporarily pushed US government bond yields higher. Today at 13:30 BST, monthly Gross Domestic Product data will be released alongside price indices for raw materials and industrial products.

FX Elsewhere. The Bank of Japan cut its inflation forecast overnight while keeping rates unchanged and making some marginal adjustments to make its asset purchase programme more sustainable. The QE tweaks included a relaxation of yield curve control, the policy by which the BoJ targets longer run government bond yields.  Last week speculation mounted that the BoJ would adjust QE at today’s meeting, causing investors to pile out of 10-year bonds and causing JPY volatility. This morning’s decision and the accompanying press conference has seen JPY trade slightly higher while avoiding any major volatility in fixed income.

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