Global Themes

Desperate Sterling hopes for positive EU response
- May to stand firm on Brexit plan
- Trump thwarts dollar drive
- Whippy week for CAD


May to stand firm on Brexit plan
Today, Prime Minister Theresa May will tell the people of Northern Ireland that her Brexit plan is the best way to avoid a hard border. Ms May has been under significant mounting pressure over the last week as she narrowly avoided defeat on many amendments to the White Paper. Former Foreign Secretary Boris Johnson singled out her treatment of the border as the biggest mistake of her negotiations with the EU. Retail sales data yesterday showed a m/m fall to -0.5% for June, a significant drop from 1.4% in May. With Brexit woes growing and economic data disappointing this week, Sterling has cracked under the pressure and tumbled near 2.5% against the US Dollar and near 1.5% against the Euro.

GBP/EUR opens trading today at €1.1175 as investors prepare for the European Union (EU) council meeting today. The EU will deliberate over the White Paper sent over by the UK. New Brexit Secretary Dominic Raab has called for "renewed energy, vigour and vim" in negotiations with the EU, as he made his first trip to Brussels yesterday.

Today, there is little economic data releases for the UK and Sterling could be dictated by political updates. If comments or rumours come out of the EU that the council have rejected the UK’s proposal, this could add further pressure on the PM and cause GBP/EUR to test the year low of €1.1148.


Trump thwarts dollar drive
It’s been a choppy week in the currency market and the US Dollar has been at the centre of the commotion. The dollar soared to fresh 1-year highs against a basket of currencies yesterday, with hawkish comments by Federal Reserve (Fed) Chair Jerome Powell providing the tailwind earlier in the week. Better than expected jobless claims data from the US yesterday also ramped up demand for the dollar as its index advanced to 95.65, the highest level since July 2017. EUR/USD remained anchored below $1.17 and even slipped below $1.16, albeit just for a few hours. The increased dollar demand aided a descent on GBP/USD to fresh 10-month lows of $1.2955, which would have unnerved British importers buying US Dollars, as the psychologically important $1.30 level was cracked.

The USD onslaught was thwarted however, as US President Donald Trump complained about the Fed’s interest rate hikes strengthening the dollar so much that it threatens the effectiveness of his protectionist strategy. Mr Trump has imposed tariffs on Chinese goods in an attempt to restrict China’s exports into the US, but the Chinese yuan has devalued significantly since, undermining the desired impact of these tariffs. Speculations that China is planning on stimulus measures to boost banks’ lending to companies drove the yuan even lower yesterday, as USD/CNY rose to new year highs, which perhaps prompted Mr Trump’s comments in an interview with CNBC.

Traders took profit on dollar positions, which began to erase most of yesterday’s daily gains against a basket of currencies. The dollar index remains suspended above 95 for now, but US politics will continue to remain in focus and drive the currency market.


Whippy week for CAD
Inflation and retail sales data from Canada is due today at 1:30pm. The annualised inflation figure is forecast to rise to 2.4% from 2.2% for the month of June. Retail sales is also expected to improve to 1.1% from -1.2% for the month of May. This positive data could boost the CAD if it meets or beats expectations and drag GBP/CAD back towards the C$1.71 handle. Despite the pound’s weakness this week, GBP/CAD rebounded off 6-week lows yesterday as Sterling pounced on the weak Canadian dollar, which has been hurt by the pullback in oil prices of late.

GBP/CAD stopped short of the C$1.73 level having rallied over 100 pips from yesterday’s low. The pair has traded in over a 13-cent range in 2018 and the erratic price action will likely continue to rattle investors.

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