EU plans for Irish border prop up Pound

Today’s macro highlights:

GBP - Markit/CIPS UK Services PMI (August)

EUR - Eurozone Retail Sales (July)

USD - Trade Balance (July)

Big hopes for Sterling yesterday may have rested on Mark Carney’s commitment to stay on as Bank of England governor and help the country navigate its way through Brexit and this did indeed provide some short-lived support for the currency. However, gains proved difficult to sustain and instead it was a report later in the day that the EU was willing to tweak its stance over the Irish border in a bid to avoid a no-deal Brexit that gave further cause for cheer. Its worth bearing in mind that the Pound made little progress, but it has drawn a line under Monday’s heavy losses.

9.30am BST today sees the release of the UK services PMI print. With the disappointment of the corresponding construction PMI yesterday and Manufacturing PMI on Monday, achieving the forecast increase to 53.9 may prove a stretch, but given the downbeat theme of the data in recent days, the risk could well be on the upside for Sterling. That said, gains may well prove short lived as it’s still going to be Brexit, rather than the macroeconomic data, that has the potential to dictate the currency’s fortunes.

Eurozone retail sales are set for publication at 10am BST and this print will be worth watching. Expectations are for the month-on-month figure to slip into negative territory and it’s readings like this that have the potential to call into question the ECB’s plan to normalise monetary policy. The unseasonably hot summer may well take a toll on the reading, but if consumers are already shying away from spending a year before interest rate rises are expected, then this may pressure the common currency as a result.

US trade talks are expected to resume today as the Trump administration attempts to renegotiate NAFTA - the North American Free Trade Agreement. Good progress has been made with Mexico, but Canada is so far refusing to yield to US demands. Failure to reach agreement here is seen as likely to hit the US dollar hard - although by all accounts the Canadian currency would also be in for a punishing time, too. Keeping with this theme however, at 1.30pm BST we have the publication of the latest US trade balance deficit, which is tipped to have grown yet again. This suggests that Trump’s trade tariffs are - at least so far - still failing to stem demand for overseas goods, with dollar strength arguably helping offset at least some of the impact of tax.

GBP/USD 

We saw a very quiet day for the pair yesterday, although the trend remains downward. Brexit and domestic political risks remain front of mind in terms of where the Pound will go next.

EUR/USD

Again, a relatively quiet session for the Euro, but Italy is very much in focus right now ahead of the publication of its budget next month. Reassurances that the government won’t breach EU spending limits have the ability to provide further support for the common currency.

GBP/EUR

There was little overall direction for GBP/EUR during yesterday’s session although progress on the Irish border deal surrounding Brexit would have the potential to deliver further upside for Sterling.