Discussion and Analysis by Charles Porter:
Sterling has received a boost at market open this morning primarily on the back of hearsay. The enduring battle over the Brexit divorce bill continues to weigh on the currency, however, it is reported that the establishment and leadership might be willing to up their offer. The US Dollar has continued its bear trend into this morning, failing to grasp any support from the passing of Trump’s tax reform through the House of Representatives. Draghi speaking in Frankfurt this morning will provide a clarification of European monetary policy following its weak decision to start tapering quantitative easing as of January.
Sterling Briefing: May may pay!
The UK PM, Theresa May, could, perhaps, be willing to up the value of the UK’s offer to the European Union to facilitate second round negotiations concerning the UK’s future relationship with the EU27. Whilst May travels to Sweden today to meet at a summit of EU leaders, the potential for progress has supported the Pound this morning.
As foreboded at the beginning of the week, UK data sensitivity has been subdued. At least in comparison to political developments, this week’s inflation, retail and employment data have barely scratched the surface of Sterling currency crosses.
Whether the potential UK concession is mere speculation and rumour or a signal of genuine momentum and progress will determine the longevity of this morning’s episode of Sterling strength currently to the order of 0.4%.
Euro Briefing: Euro Draghi-ng its feet
The Euro lost considerable value following a dovish and weak tapering of ECB quantitative easing last month. This morning, Mario Draghi gave a speech in Frankfurt at the European Banking Congress in a major opportunity for citizens, traders and investors to understand the future path of quantitative easing and monetary policy.
The transcript of Draghi’s speech was published before he began to speak in Frankfurt. The initial market reaction was positive, with the Euro appreciating by around 0.1%. However, throughout the course of Draghi’s delivery, markets jostled to see the Euro drag its feet and struggle against the US Dollar. Draghi offered mixed messages: inflation remains fragile whilst the Eurozone is in a solid economic expansion.
Dollar Briefing: Back me up here, guys
Economics and Politics are both unequivocally standing on the side of the US Dollar, however, are failing to do much to offer it support.
Shown in the graph below, the US Dollar has lost in excess of 1.3% throughout this week against the Pound, following Sterling’s dramatic weekend devaluation. Let’s look at the facts: the Pound has been marred with political scandals, Brexit stagnation and below-expectation economic inflation. The Dollar, in contrast, has had its headline tax reform bill passed through the House of Representatives and a lucrative, and surprisingly stable, Asian Presidential Tour. Therefore, the Dollar appears in need of back up from the indicative support of underlying political and economic trends.
The Days Ahead:
The Bank of Canada surprised us a couple of months ago with two consecutive interest rate hikes. Following the decisions, Canadian inflation looks depressed with the Consumer Price Index likely to show a meek change in the aggregate price level. Data released at 13:30BST will be CAD-market sensitive. Unless the Sunday Times delivers another stunning blow to May’s Cabinet, the weekend could be relatively subdued.