Brexit rhetoric was unchanged on Friday as US data releases grabbed the attention, allowing a Sterling push above 1.2280 on the Dollar while the Euro recovered to the 1.1025 mark. Futures market data recorded only a slight decline in short (bets against the Pound) with the total still above 90,000 contracts, maintaining the potential for short covering (Pound rises sharply) if political sentiment improves.
The G7 Summit Brexit talk saw UK and EU leaders looking to pin the blame on the other side for a ‘no-deal’ outcome. Boris Johnson refused to answer questions on whether parliament could be suspended while stating that negotiations could be extended to the last minute. This morning the Euro is a little stronger at 1.1010 and the Dollar has pushed back to 1.2215. Opposition MPs are set to discuss tactics to avoid a ‘no-deal’ today.
In his speech to the Jackson Hole Symposium, Fed Chair Powell stated that the US economy was in a good place, but that slowing growth, trade policies and muted inflation were weighing on this favourable outlook. Powell also stated that the Fed would act as appropriate and that there were no recent precedents to guide policy response to trade uncertainty.
Following the speech, President Trump again criticised the Federal Reserve and Powell with the rhetoric even more aggressive than in previous episodes. The attack on Powell, increased tariffs on China and warning to US companies to move out of China triggered sharp dollar losses to 2-week lows with the Euro advancing to the 1.1160 as expectations of a further Fed rate cut in September intensified.
There are also increasing fears that trade wars will soon develop into currency wars as the Euro opened higher in Asia on Monday amid wider and continuing Dollar losses.
The Euro remains on the defensive against the Dollar as we start a new week, as the pair fell during Monday’s session, invalidating Friday's bullish surge. The pair is currently trading at 1.1190, the lower bound of the weekly range.
The moderate rebound in the demand for the common currency came after some optimism emerged on the US-China trade front, forcing the pair to fade a big part of Friday’s strong with support emerging at the 1.1100 area.News from the trade front eclipsed some positive headlines from the Italian political situation, where a new coalition government between the Democratic Party (PD) and Five Star Movement (M5S) looks closer to an alliance agreement, with negotiations continuing.
On the docket, German final Q2 GDP figures already being released and have come in in-line with expectations, showing the economy contracted 0.1% inter-quarter.
Data to watch
07.00 EUR - German final GDP
13.00 GBP - MPC member Tenreyro speaks
15.00 USD - CB Consumer Confidence
USD - Richmond Manufacturing Index
Posted in Daily Market News on Aug 27 2019