Morning Report: 25 May 2018

May 25, 2018

GBP. Sterling made gains against most G10 currencies yesterday except CHF and JPY, which were fuelled by an increased market appetite for safer currencies. Today has the potential to be a decisive day for sterling, with the second reading of Gross Domestic Product at 09:30 BST. Bank of England policy makers, including Governor Mark Carney, have repeatedly made clear that they expect Q1’s weak preliminary GDP figures to be revised upwards – meaning expectations for today’s release are high. Said GDP reading showed that UK consumer spending lost momentum with household spending increasing just 0.2%, its weakest performance in three years – whilst QoQ and YoY GDP was not revised. Mark Carney speaks later today at a Riksbank event along with Jerome Powell about the future of central banking. This follows discussion within the Monetary Policy Committee about the methodology of forward guidance from the BoE, with these discussion made public knowledge after Tuesday’s Inflation Report Hearings. Carney has been busy of late with Brexit headlines dominated by the BoE Governor proclaiming that a disruptive Brexit will force rate-setters into some of the same exceptional measures used post referendum.

USD. Broad dollar strength, which has been much of the theme for markets this week, was not the story yesterday as the greenback lost out to most G10 currencies. This comes as Donald Trump announced he would pull out of the historic North Korea summit, following retaliation from North Korean officials over statements made from Trump’s administration. This risk off move, despite reports that Kim Jong Un is still willing to meet Trump, saw JPY make its third day of successive gains against the greenback. The session ended as the markets eyed today’s events for the dollar, with Federal Reserve Chair Jerome Powell speaking about financial stability and central bank transparency today at a Riksbank event at 14:20 BST, and Durable goods data out at 13:30 BST.

EUR. The euro has been under pressure last week, and yesterday’s brief rally against the US dollar has come undone this morning. European Central Bank meeting minutes revealed that the Governing Council had taken a characteristically dovish reading of the recent growth slowdown in the Eurozone. The minutes said uncertainty had increased, despite growth remaining solid. This morning’s main release will be the IFO Business Climate survey, at 09:00 BST. European finance ministers will meet in Brussels today, potentially resulting in headlines relevant to the newly formed Italian government’s fiscal plans.

CAD. The loonie ended yesterday’s session at the bottom of the G10 currency board, pushing to a weakly low against USD, amid steadily falling oil prices and fears that the US would impose auto-tariffs. This would be seen as a last ditch attempt by the US to push a deal on auto-production over the line as it follows their previous deal making system of threatening tariffs initially and then making concessions.

FX Elsewhere. Turkish lira rallied strongly after the Central bank of the Republic of Turkey increased the late liquidity window interest rate from 13.5% to 16.5% in an emergency meeting Wednesday evening, but came under renewed pressure yesterday. President Erdogan delivered a speech yesterday, but he mostly steered away from economic and monetary issues, worrying markets that he is still not supporting the recent hikes. This morning the CBRT extended a program which allows businesses to obtain dollars and euros to repay loans at a fixed rate, which supports businesses and propped up the lira.

UK news

  • Financial Times: North Korea willing to meet US despite cancelled Trump summit. North Korea has insisted it remains interested in a summit between Donald Trump and Kim Jong Un despite the US president’s cancellation of the June 12 meeting, saying it was open to “resolving problems” between the two countries “at any time”.
  • Wall Street Journal: As Brexit Clock Ticks, the U.K. Tries to Agree on a Plan. The British government has a plan to avoid a disruptive Brexit and solve related problems regarding Ireland’s internal border, and European Union officials say the plan would be hard to refuse.
  • Bloomberg: U.K. Economy Barely Grows as Households Rein in Spending. U.K. consumer spending lost momentum in the first quarter and companies cut investment after severe weather swept the country.

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