Upbeat Eurozone data drives GBP/EUR lower; US in focus as UK returns from summer break

Today’s macro highlights:

  • USD – Advance Goods Trade Balance (July)

  • USD – Consumer Confidence (August)

The Pound was pushed to lows not seen since last September against the Euro as the effects of thin bank-holiday trade in London and the looming shadow of a no-deal Brexit were compounded by some better than expected economic data out of the Eurozone. Critically, the forward-looking German IFO expectations index rose by more than what had been expected, driving Sterling down to eleven-month lows against the common currency as a result.

As the UK starts its return to work from the summer break after yesterday’s public holiday, GBP volumes may be expected to increase in the week ahead, although economic data remains thin on the ground in the short term. Next Tuesday’s return for the UK Parliament will be an event worth watching as the clock truly is ticking on reaching a compromise over the country’s exit from the European Union. Signs of progress here will certainly be well received by the Pound.

In the short term, there are a couple of key economic readings due from across the Atlantic today which could provide some fresh direction for the Dollar. Despite the upbeat economic assessment delivered by Federal Reserve Chief Powell at the weekend’s conference in Jackson Hole, Wyoming, we have seen some shortfalls in US economic data over the last few days. This has had the effect of allowing both the Pound and Euro to post gains over the Dollar. The idea of at least one - if not two - further US rate hikes in 2018 is arguably now priced in to the market and investors are looking for what happens next.

The US advance goods trade balance print for July will be published at 1.30pm BST today and the expectation is for the deficit to grow slightly. Clearly this is at odds with current US policy aims of reducing the country’s reliance on overseas imports and will underline the fact that engineering such an outcome against the backdrop of a broadly strengthening US Dollar is proving difficult to achieve.

3pm BST sees the publication of the US consumer confidence index for August and again there’s an expectation that this could show a dip from last month. The figure is seen as a good indicator of future consumer spending - something which has been on a tear since the start of the year in the US, as shown by recent earnings releases from retailers like Walmart and Target. Any meaningful weakness in this figure could call into question the idea that the US economy can sustain the recent pace of growth.

GBP/USD

The pair had been posting steady gains since the lows of last Thursday, although momentum appears to have dried up in overnight trade. Further disappointment in the US economic data today could deliver another round of buying here, although with a longer term outlook the Dollar certainly remains dominant.

EUR/USD

As with the Pound, the common currency has been making steady gains over the dollar of late and is eyeing highs for the month. Again, momentum has stalled overnight although hawkish comments from the Eurozone alongside the idea that the latest bounce for the US economy is the result of short term stimulus rather than any structural change could yet deliver further upside here.

GBP/EUR

The Pound is very much on the backfoot as the prospect of a no-deal Brexit continues to mount. It may well be a case of having to wait until Parliament returns from the summer break next week before we see further meaningful direction here but without doubt it’s the political - rather than economic - agenda that stands to provide the direction in the near term.