Good morning,

EUR: King Felipe intervenes

We remain a little surprised at how well the euro has held up given the news from Spain in recent days, recovering losses against the USD yesterday and pushing GBP lower. Although King Felipe gave a television address last night it is unlikely to change matters given how many Spaniards believe the monarchy to be out of touch. A late night interview with the BBC from Catalan leader Carles Puigdemont stating that Catalonia would declare independence in a matter of days was the more important intervention of the day and Spanish risk remains in the background on all euro crosses.

Eurozone services PMIs throughout the session may, as always, have the ability to strengthen the single currency’s backbone but headlines from Spain, whenever they emerge, are unlikely to help matters. We don’t know how the market prices for Catalonia formally declaring independence but there is no way that euro will be as strong as it is now should it happen before the week is out.

USD: Shortlist of Fed Chair nominees passed to Trump

While Trump is busy putting his stamp on North Korea, Puerto Rico and the National Football League, his most important change for now will be felt a few blocks down the road from the White House. Trump has made no secret of his desire to replace Fed Chair Yellen with his own nominee with the shortlist containing no real surprises although the front runners are both more hawkish policy advocates than the current head of the Fed.

We have a feeling however that Trump will select a dove given his desire for low rates and that Yellen will have to leave as she was an Obama appointment and the defining characteristic of the Trump administration is the reversal of that which came under Obama.

A little USD strength has emerged from speculation around the list but as we said yesterday further USD upside will only be propagated by stronger US data, some of which may emerge later in the form of the Non-Manufacturing ISM at 15.00 and Friday’s payrolls report also.

GBP: A roaring Lion?

The Daily Telegraph is characterising Boris Johnson’s speech to the Conservative Party Conference as the roar of a lion and we would have to agree: long on style and short on substance. Similar utterances from Liam Fox and David Davis failed to advance the Brexit cause further than ‘Brexit is going to be great because we said so’. We can but hope that Prime Minister May’s speech has more body to it but fear that we will be disappointed and the agenda will focus mainly on domestic matters.

One interesting phrase within David Davis’s speech was that the UK will begin to prepare for a ‘no-deal Brexit’; customs systems, extra men and infrastructure at ports and airports and that is just the trade side of the coin. We will wait and see whether such matters are a part of the next Autumn Budget due in November.

Following two poor PMIs from the manufacturing and construction industries the services industry has the opportunity to rescue or abandon the pound further. The figure is due at 09.30.

Have a great day

Jeremy Cook, Chief Economist