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Euro rockets as missile tensions ease

Euro rockets as missile tensions ease

GBP
The Pound clocked a high of 1.2979 yesterday against the US Dollar before ending the day on a weak note around the 1.2916 level. Sterling is higher this morning against the Euro, pushing back above the 1.08 level from lows around 1.0745 seen yesterday.

The UK PM, Theresa May, seeks to diminish Brexit concerns during her three-day visit to Japan, says a BBC report. Prime Minister May will be accompanied by Trade Secretary Liam Fox and 15 business executives. May said yesterday, “My discussions with PM Abe will focus on how we can prepare the ground for an ambitious free-trade agreement after Brexit, based on the EU-Japan agreement which I very much hope is nearing conclusion.” Japan is focused on concluding the trade deal with the EU and May will want to make sure that the UK has continuity. However, the UK will be unable to sign any deal until it has left the EU.

The UK’s third round of Brexit negotiations with the EU alongside the UK PM May’s visit to Japan keeps GBP traders on the edge today, alongside eagerly awaited UK net lending to individuals data.

USD

The Dollar recovered from lows vs major rivals as North Korea fears recede and tensions eased since yesterday. This, coupled with a modest uptick in the US Treasury bond yields, helped the US Dollar Index to extend some overnight gains.

The Federal Reserve (Fed) has no plans to raise interest rates until at least December time. This could be because it will be more difficult for the Fed and economists to get a clear picture of the underlying trends in the economy for several months after Hurricane Harvey. This might, to some extent, make the Fed approach policy tightening more cautiously than they would have otherwise. It would risk undermining confidence if the Fed were to proceed with policy tightening in the disruption phase.

It would seem unlikely, however, that Hurricane Harvey will be concerning enough to prevent the Fed kicking of its first tentative steps towards Quantitative Tightening (QT) at its September meeting.

EUR

The Euro has seen underlying strength recently as the single currency shows firm economic acceleration with political risks dissipating. The single currency broke through the 1.20 barrier against the Dollar yesterday for the first time since January 2015, whilst the Pound bought as little as €1.0745, the lowest since October 2009.

Stop-loss Euro purchasing accelerated off the back of weak risk conditions that underpinned the Euro. There was a move higher despite a decline in German bund yields and Eurozone equities moving sharply lower with the German DAX index posting losses of over 2.0% before a slight recovery. That said, the German Gfk Consumer Confidence Survey for September showed an uptick against expectations as the index read 10.9, a rise of 0.1 from last month.

Rising tensions with North Korea, disarray in the White House, and weak sentiment in the Pound has pushed investment in other perceived safe havens, including the Euro, fuelling the currency’s campaign.

Today, German HICP data is out with the rate expected to pick up to 1.7% y/y from 1.5% y/y the previous month. The ESI Economic Confidence indicator also out with expectations for it to nudge higher to 111.4 from 114.2, aided by an improvement in consumer confidence and an expected rise in industrial sentiment.

Data to Watch:
9:30am GBP Consumer Credit (Jul), Mortgage Approvals
10:00am EUR Services Sentiment (Aug), Industrial Confidence (Aug), Business Climate (Aug), Economic Sentiment Indicator (Aug).
1:15pm USD ADP Employment Change (Aug), Gross Domestic Product Price Index (Q2), GDP Annualised (Q2), Personal Consumption Expenditures Prices (QoQ) (Q2), Core Personal Consumption Expenditures (QoQ) (Q2), FOMC Member Powell Speech, EIA Crude Oil Stocks Change 9Aug 25th).

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