Morning Report: 21 June 2018

June 21, 2018

GBP. Sterling hosted a rally against USD in the afternoon of yesterday’s session, but proved to lack the legs to see the day out, ultimately ending flat versus the dollar. Yesterday, Theresa May won the House of Commons vote which saw the removal of the House of Lords amendment to include a “meaningful vote” in the European Withdrawal Bill. This allows the government to continue to threaten a no-deal exit and reduces parliament’s involvement in the exit process. Today at 12:00 BST the Bank of England Monetary Policy Committee will meet to announce the official bank rate, with no interest rate hike expected by both analysts and money markets alike. However, with the money market implying the probability of a rate hike in August is as predictable as a flip of a coin, market participants will keep a close eye on the language used in the monetary policy statement that is released alongside the rate decision.

EUR. Yesterday contained little to excite the euro which had it eventually losing out to the dollar, but making gains against NZD and JPY. The central bankers that partook in the panel discussion at the European Central Bank’s annual conference in Sintra, Portugal, all voiced concerns about a possible imminent trade war. They worried about how protectionist policies drive up consumer prices, while they simultaneously slow down the economy. The presidents and governors of the central banks of Australia, the Eurozone, Japan and US all wrestled with the question of whether in that case supporting the economy, or price stability should be given priority.

USD. The greenback won terrain against most G10 currencies yesterday as trade tensions continue to cast uncertainty over the world. Federal Reserve’s chair Jerome Powell even remarked that “Changes in trade policy could cause us to have to question the outlook” and that “for the first time, we’re hearing about decisions to postpone investment, postpone hiring.” It seems to be an important topic for the coming months to determine which economies will be hurt hardest by the protectionist measures announced by Trump. They can slow down the export sectors in for example the Eurozone and China, but they can also backfire, distort production chains within the US and strongly drive up inflation. The US Current Account meanwhile came in marginally above expectations yesterday, with a reading of -124 billion in the first quarter. Today at 13:30 BST the Philly Fed Manufacturing Index is released, followed by the Conference Board Leading Index at 15:00.

CAD. USDCAD continued to break fresh 12-month highs yesterday with NAFTA risk still remaining and possible oil price moderation posing further downside risk for the loonie. With little on the data calendar until tomorrow, the current downward momentum for the loonie doesn’t look set to end today. However, positive outcomes from tomorrow’s Consumer Price Index reading at 13:30 BST and from OPEC’s meeting may alleviate the current downward pressure.

UK news

  • Financial Times: Trump in U-turn as he signs order to end family separations. President Donald Trump has ended his policy of separating children from their parents after illegal border crossings in a dramatic U-turn that followed criticism from Democrats, Republicans and his wife and daughter.
  • Wall Street Journal: Italy Interior Minister Rules Out Taking Back Migrants From Germany. Italy’s Interior Minister Matteo Salvini said Wednesday he wasn’t willing to take migrants who have been registered in Italy back from Germany, a stance which would clash with the plans of his German peer.
  • Bloomberg: China Accuses U.S. of Trade ‘Abuses’ as India Hits Back at Trump. The global trade war deepened Thursday with China reiterating it will hit back if the latest tariff threats from Donald Trump materialize, while India followed the European Union in slapping retaliatory levies on U.S. goods.

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