Trump turns on Fed
There were no tier one UK economic data releases or political developments yesterday, leaving Sterling at the mercy of global influences. The IHS Markit Household Finance Index for August strengthened to the second highest level for nine years, which should feed into solid consumer spending and support the wider economy.
A mildly more positive risk appetite globally provided some Sterling support. A Dollar retreat allowed the Pound to reach highs near 1.2800, while the Euro held firm and pushed back to the 1.1175 level, before pushing to 1.1118 overnight.
The UK and EU are due to hold another round of Brexit negotiations in Brussels today and tomorrow. The only other UK data slated is the July Public Sector Net Borrowing. Wider global currency moves mean Sterling opens this morning above 1.2800 against the Dollar, while the Euro starts the day back at 1.1142.
Yesterday’s volumes remained low during the morning session and increased slightly throughout the day. Just before the US opened, the Euro to Dollar rate dipped below the 1.1400 mark, but gradually recovered towards the end of the day.
Monday was a day of little data, so political factors dominated. In Italian politics, the Cabinet Undersecretary did not rule out the possibility that the budget deficit for 2019 could be above 3% of GDP. The Bundesbank stated that third quarter GDP growth might be slightly lower than during H1. Italian bonds rallied, however, propping up the Euro.
The Euro surpassed the 1.1500 mark against the Dollar on Tuesday morning during the Asian session, with the Dollar weakening slightly. Today is another day of very little data releases in Europe, with the most significant set to be the UK’s Public Sector Net Borrowing for Jul.
The US Dollar fluctuated, gaining against the Euro early yesterday, but falling against the Pound overnight.
The Dollar tumbled late night after President Trump criticised the Federal Reserve’s (Fed) tightening cycle, hinting that intervention to weaken the buck amidst the ongoing trade wars appears not entirely ruled out for the time being. While it is not the first time Trump has expressed dissatisfaction with rate hikes, it breaks the long-standing tradition of no political interference with monetary policy.
US-Turkey tensions remain high, with the situation around US pastor Brunson in the centre of the debate, as well as the persistent decline in the Turkish currency. The only real important data is expected tomorrow, when we see the Federal Open Market Committee meeting minutes.