Dollar weakness props up Sterling; Euro suffers on Italy concerns

Today’s macro highlights:

  • GBP – CBI Industrial Trends Report
  • GBP – UK public sector net borrowing

Dollar weakness props up Sterling; Euro suffers on Italy concerns

Sterling was firmer on the day against the Dollar although the outlook for further gains remains muddied by Brexit concerns, particularly as the UK government prepares to issue advice to businesses, public bodies and members of the public as to how to prepare for a no-deal Brexit. This could trigger some volatility in the Pound. Any hint of a deal being reached at negotiations being held today and tomorrow will be beneficial for the currency. The Euro meanwhile remains under pressure as focus turns to Italy where, in contravention of EU budgetary rules, the government has announced its intention to spend EUR80 billion on infrastructure following the Genoa bridge disaster. Any further developments on this front will likely hamper any gains for the common currency in the coming days. Meanwhile, the Dollar initially recovered from Friday’s decline, which was prompted by optimism about a potential easing of trade wars concerns, only to pare gains later in the day on the back of rhetoric from President Trump about his discontent with rate hikes. 

Today’s economic calendar is light. The Pound may be affected if the Confederation of British Industry (CBI) Industrial Trends report for August (due for release at 11.00 BST) moves more than the current expected decline. Public sector net borrowing at 08.30 BST will also be closely watched by investors. Otherwise, it’ll be Brexit as usual; progress, or a lack thereof, will be the main factor moving the needle for Sterling.

For the Euro and Dollar, there is not much in the way of data to look forward to. For the latter in particular, the key events of the week will be the release of August’s FOMC meeting minutes on Wednesday evening and the Jackson Hole Symposium later in the week, both of which should provide further insight into current monetary policy. They will provide support to the Dollar if they strike a hawkish tone as is expected. The European Central Bank is also due to release its latest meeting minutes tomorrow and it will be interesting to see how the authorities will deal with recent crises. Will the events prompt a pause in bond purchase reductions that are scheduled to begin next month?

GBP/USD

Cable is trading high in early morning trade after posting gains yesterday, helped by Dollar weakness. With Brexit negotiations set to take place today and tomorrow, we could see some volatility return to the Pound in the coming days. 

EUR/USD

The EUR/USD gained towards the end of the day despite concerns about the potential breach of EU rules by the Italian government. Dollar weakness was the main driving force. With little in the way of economic news in the week ahead, the pair are likely to continue trading on headlines whether these are out of Europe or concern imminent trade talks between the US and China.

GBP/EUR

A positive surprise on the data front, in combination with concerns about the Italian budget could provide a short-term boost for the Pound. The more likely scenario though is that political headlines will continue to drive moves this week as Brexit concerns remains front and centre.

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