Global Themes


US President Donald Trump landed in the UK yesterday and immediately caused the markets to react. Mr Trump highlighted that under the current Brexit plans, it might be impossible for the US and UK to have a free trade deal (source: Reuters). President Trump stated under the current Brexit terms, the US would be dealing with the EU and not the UK. Despite his harsh words, Mr Trump is set to sit down with Ms May for lunch, where it is expected trade talk will be the main topic. The US President is then scheduled to meet with the Queen for afternoon tea. The end to the week could still be met with volatility should any tweets from the President surprise market participants.

The US Dollar index is hovering just under the 95-handle this morning and could notch its 5th consecutive day of gains should we see a positive finish today. The last time a move like this occurred was back in May in the build-up to the June Federal Reserve (Fed) meeting. The dollar has been dragged higher with treasury yields rising and with inflation beating forecasts yesterday and expected to continue rising. The prospect of further interest rate hikes from the Fed remains very much on the cards. Fed Chair Jerome Powell said Yesterday, that the US economy is doing well with unemployment and inflation falling in line with the central bank’s target. Although he did raise concerns about trade tensions Mr Powell did little to discourage the idea of two more interest rate hikes this year.

EUR/USD falls further away from the week’s high of $1.1790 to $1.1640 this morning, falling over 1.2% over the past four days.


The European Central Bank (ECB) released the minutes of its June meeting yesterday. The report revealed that the central bank is willing to keep interest rates at a record low for as long as needed to raise inflation. The ECB hinted at interest rate hikes “through the summer” of 2019 at its meeting last month, when it also announced the end of its stimulus programme, but policymakers at the meeting felt a need to stress that rates would move only if inflation continued to rise back towards or above the bank’s target of 2%. The Euro seemed unfazed by the announcement as it continues to trade in the mid $1.16 level against the US Dollar, however, it did clock some gains against Sterling, pressuring GBP/EUR back into the €1.12 region.

US President Donald Trump claims NATO spending will increase "like never before" stating members had agreed to increase spending by £33bn at the NATO meeting yesterday. However, French President Emmanuel Macron denied Trump’s claim that NATO allies agreed to boost spending over 2%. Mr Macron also said that Mr Trump "never at any moment, either in public or in private, threatened to withdraw from NATO” (source: Sky News). Although not a conclusive result, tensions are expected to ease as the US remains part of NATO.

Safe-haven currencies are feeling the brunt of the risk-on sentiment which has washed over global markets. The Japanese Yen and Swiss Franc have heavily weakened against most of their major counterparts.
currencies (source: Reuters).


Yesterday, Prime Minister Theresa May’s government unveiled new detailed Brexit plans published in a White Paper, which must first be approved by Parliament before being examined by the European Union (EU). Political disorder has intensified this week as a result of Ms May’s new proposals, with key ministers resigning and lingering fears of a leadership contest against the PM. Despite this turmoil, Ms May will be hoping the White Paper is agreed upon and accepted to help speed up talks with the EU before Britain leaves in March 2019. EU leaders have yet to pass judgement on the new proposals, but market participants will be watching closely for any developments today ahead of next week’s crucial stage of Brexit negotiations.

Sterling has suffered a volatile week already, swinging in over a 2-cent range between $1.3136 and $1.3360 against the US Dollar. Against the Euro, the trading range remained tighter between €1.1237 (a 4-month low) up to €1.1347. GBP/EUR struggles to hang on to the €1.13 handle this morning while GBP/USD faces further downside risk, already slipping over 0.6% from the open. The risk of a break below $1.31 could open the door to the pair testing fresh year lows around $1.30.

Bank of England (BOE) Deputy Governor, Jon Cunliffe, is due to speak at 12:00pm today. Investors will be listening carefully for any hints that he might vote for an interest rate hike next month, which could offer the pound welcome support. The BOE have specifically highlighted that a decision to hike rates would depend on key economic indicators such as wage growth, inflation and retail sales, which are all released next week.

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