A partnership like no other
The Pound had a slow start to yesterday morning and Brexit Secretary Dominic Raab reportedly bemoaned the EU’s Chief Negotiator Michel Barnier’s lack of availability for meetings, but added he was confident that a deal is within sight. Michel Barnier’s comments were much more significant for Sterling as he stated that the EU was prepared to offer the UK “a partnership such as has never been seen with any other third country”. The Pound immediately saw sharp gains and UK gilt (government bond) yields also moved higher, which reinforced Sterling support.
The Pound secured sustained support, moving 185 pips to back above 1.3000 against the Dollar for the first time in 3 weeks while the Euro retreated sharply, back up past the key 1.1110 mark.
Barnier also stated that whilst the EU would respect UK red lines scrupulously, the single market is not negotiable. French Finance Minister Le Maire and German Finance minister Scholz commented that a ‘no deal’ Brexit is not in the EU’s interest. The market perceived a significant shift in EU position on speculation a no-deal scenario could have a significant negative impact on the EU economy. The Pound opens this morning with a firm tone despite some pressure for a correction.
Geopolitical data stole the show yesterday, with Barnier’s comments having a significant effect on the Sterling as well as the Euro. Both the Euro Dollar rate (in the 1.1710 region) and the Sterling Euro rate (1.1130) are up, on the back of a perceived increase in demand from EU officials to secure a Brexit deal.
The Turkish lira had another a bad day yesterday, which put the brakes on the Euro’s early momentum in the session. Add to this the reports that the Italian government is considering further ECB bond buying into 2019, and the Euro struggled early on. Despite this, and as mentioned previously, the Euro finished yesterday strongly and looks to be holding at that level this morning.
Economic data was sparse yesterday, but today sees Spanish CPI figures, Swiss lending figures, mortgage approvals in the UK, and the EU’s business climate figures. Arguably the news that may create the most volatility will be Germany’s Unemployment Rate and its Harmonised Index of Consumer Prices. So, lots of data today, but as yesterday proved, one geopolitical comment can have much more of an effect on the currency market.
US Q2 GDP was revised up to 4.2% from flash readings of 4.1%, beating a projected forecast of 4.0%, despite consumer spending estimate being revised modestly lower. There was also a small upward revision to the Personal Consumption Expenditure Prices index. The Dollar ticked higher following the release but was largely overshadowed by events elsewhere and the overall impact was muted. Pending Home Sales fell by 0.7%, worse than the forecast 0.3% gain. Core Personal Consumption Expenditure, the Fed’s preferred inflation figure, is due at the US market open and is forecast to rise to 2% YoY. Also released at midday, Personal Income Spending Data and the usual initial weekly jobless claims will make for a lively start to the afternoon.
Data to watch:
08:55 GER Unemployment Rate s.a. (Aug)
08:55 GER Unemployment Change (Aug)
09:30 GBP Mortgage Approvals (Jul)
10:00 EUR Business Climate (Aug)
13:00 GER Harmonized Index of Consumer Prices (YoY) (Aug)
13:30 USD Personal Consumption Expenditures – Price Index (MoM) (Jul)
13:30 USD Personal Spending (Jul)
13:30 USD Core Personal Consumption Expenditure – Price Index (YoY) (Jul)
13:30 USD Personal Consumption Expenditures – Price Index (YoY) (Jul)
13:30 USD Core Personal Consumption Expenditure – Price Index (MoM) (Jul)
13:30 USD Personal Income (MoM) (Jul)
13:30 CAD Gross Domestic Product Annualized (QoQ) (Q2)
13:30 USD Continuing Jobless Claims (Aug 17)
13:30 USD Initial Jobless Claims (Aug 24)
13:30 CAD Gross Domestic Product (MoM) (Jun)
19:30 German Buba President Weidmann speech
00:01 GBP Gfk Consumer Confidence (Aug)