Sterling supported by Brexit pledge

Today’s macro highlights:

  • EUR - ECB Account of July 26 monetary policy meeting

  • EUR - Markit PMIs (August)

  • US - Market PMIs (August)

Sterling investors took heart from signs of progress on the Brexit front yesterday as chief negotiators from both sides provided assurances on their willingness to reach a deal. Arguably the risk of a no-deal Brexit has been largely priced into markets, so any hint of a deal on the table will likely drive some positive performance from the single currency. The Euro was also up on the day as fears about Turkey and the Italian budget diminished somewhat.

The Dollar, on the other hand, trended lower on Wednesday, recording its longest losing stretch in months (five consecutive days) as a number of factors converged to weigh on the Greenback. These included political uncertainty regarding two former advisers that are facing prison sentences (one of whom has implicated Trump), disappointing July existing home sales and what some interpreted as a somewhat dovish tone struck by the Federal Reserve. The central bank appears concerned about the impact of potential trade wars on global growth. It still seems likely the group will hike in September but there are jitters about the path thereafter.

However, the Dollar could see some recovery in the coming days and indeed in early morning trading had regained some lost ground. The latest $16 billion worth of tariffs on Chinese imports will be implemented today; any retaliation from the economic giant could spark a flight to safety with the Dollar the prime beneficiary of such a move. The start of the Jackson Hole Economic Policy Symposium, which begins today, may also drive the Greenback’s performance over the coming days.

At last there are some economic releases to look forward to today. Preliminary Markit purchasing managers’ indices (PMIs) for the US (14.45 BST) and Euro area economies (starting at 08.15 BST) are due out, as is the account of the European Central Bank’s (ECB) latest monetary policy meeting. We’ll gain further insight into how the votes went at the July meeting. If we learn that all members sided with ECB President Draghi in his interpretation that rates will not rise before September, we will see renewed pressure on the common currency. Likewise, a degree of disagreement in which the hawks indicate a desire for earlier hikes, may well see the Euro continue yesterday’s gains.  

GBP/USD

Cable hit a two-week high during Wednesday, helped by easing concerns about a no-deal Brexit with Dollar weakness also helpful. In early morning trading, however, the Dollar’s recovery had reversed some of these gains. Investors will, as usual, be closely monitoring the outcome of Brexit negotiations to provide short-term direction.

EUR/USD

The EUR/USD posted its sixth consecutive day of advance, also aided by the combination of easing geopolitical risks. All eyes will be on the release of the ECB’s July meeting minutes as this will almost certainly drive the pair’s performance in one direction or the other.

GBP/EUR

The cross traded lower on the day as gains in the Euro offset the Pound’s upward trajectory. We await further developments on the potential for a Brexit deal and the release of the ECB’s meeting minutes for the day’s movements.