Trade Deal Announcement Expected?
Michel Barnier, EU Chief Negotiator, stated that he believes Boris Johnson wants to reach a deal, also that a balanced deal is possible but perhaps with narrower scope. Speculation that a modest free-trade deal would be agreed with talks continuing next year to flesh it out, gained traction. The announcement of any deal would provide immediate relief but uncertainty will remain very high.
Sterling trading was dictated by global market conditions again as the Pound gained on a weak US dollar to post 4-month highs at 1.2900 before a slight correction. The Euro strengthened but eventually settled around 1.0950. Confidence in the UK economic outlook remains fragile but now with extra concerns over the travel industry. Lloyds business barometer recovered across all components to print -22 for July, up from -30.
At market open the Euro edged lower to near 1.0960 while the Pound is supported near 1.2850 on the Dollar and markets again look to global market moves to drive the Pound.
US durable goods orders increased 7.3% for June after a revised 15.1% gain the previous month and marginally above consensus forecasts. Underlying orders increased by 3.3%, slightly below market expectations. The Dallas Federal Reserve(Fed) manufacturing index improved slightly to -3 for July from -6.1 the previous month. Expectations over the outlook remain strong but eased slightly from June levels.
The dollar overall remained firmly on the defensive with a slide to 2-year lows amid a lack of confidence in fundamentals and the Euro strengthened to 22-month highs around 1.1780 before a slight correction. Markets maintained expectations of a very accommodative Federal Reserve policy at Wednesday’s policy meeting and dovish forward guidance. The dollar recovered slightly on Tuesday with the Euro retreating to the 1.0730 area, but underlying US sentiment remained weak.
The German IFO economic confidence index strengthened to 90.5 for July from 86.3 previously and was above consensus forecasts of 89.3. The current conditions component strengthened to 84.5 from 81.3, slightly below market forecasts, while the expectations index strengthened to 97.0 from 91.6.
Markets remained uneasy over the risk of coronavirus spikes within Europe, although overall Euro sentiment held firm. According to a recent German Bundesbank report, the economy declined sharply in the second quarter at the fastest rate of decline since the 1970s.
As of writing, the Euro trades just under the 1.1730 mark against its US counterpart.
Data to watch
07:00 – EUR – Spanish Unemployment rate
14:00 – USD – CB Consumer Confidence