Good morning,

An escalation of threatening language between the US and North Korea is dominating markets as we open up this morning’s session.

USD: Fire, Fury and Falls

The back and forth between Washington and Pyongyang has hit levels that we have not seen in a while with North Korea this morning directly threatening the Pacific island and US territory of Guam. The island is an important operating base for US strategic bombers. This warning in itself was in direct response to a Trump statement stating that should North Korea continue to threaten the US then it would be met with “fire and fury”.

The cynic in me thinks it odd that these headlines are coming as the focus of the Special Prosecutor on the Trump campaign hardens.

We have seen a very typical haven response by markets with the Japanese yen flying higher, despite its proximity to the Korean peninsula, pushing to a 2½ month high against the US dollar. The dollar however has not been the haven that it once was and is only meaningfully up against the AUD within the G10.

We will watch the Presidential twitter feed with nervous anticipation to see whether the next step of this involves further escalation.

GBP: Fresh lows on little news

GBPEUR came within a whisker of breaking the 1.10 level yesterday before easing back through the Asian session. Some blamed a Sky News article that said that Downing St will set about “hardening up” its Brexit position next week with the PM back from holiday. Whether that means toughening up or simply clarifying what the UK government stands for – not ‘Brexit means Brexit’, or a ‘red, white and blue Brexit’ – we are not sure but Brexit risk will increase next week as Westminster starts to creak back into life following the summer break.

The majority of sterling volatility will come tomorrow as we get the latest run of industrial and construction production numbers.

ZAR: Zuma survives

South African President Jacob Zuma survived a no confidence vote 198-177 yesterday. While it is a win, the question must now be at what cost? The lions/vultures/jackals are circling a wounded ANC government and this will not be the last time that a vote to oust him is called. The ZAR has weakened as investors had hoped that with Zuma gone, much needed reforms could be enacted; they may have to wait only a little longer. Last year’s municipal election results were the party’s worst-ever and an unwillingness to deal with the inherent corruption of the Zuma government will keep the ZAR offered.

The data calendar is once again quiet today with focus very much falling on the Korean peninsula.

Have a great day

Jeremy Cook, Chief Economist