Good morning,
USD: A recovery but only just
The greenback rallied back from the lower levels it plumbed yesterday but there is still a huge amount of unease about just what can contain the dollar’s political reaction to both local and international events. That being said EURUSD is back below 1.20 once again with GBPUSD also lower. There remains a ‘risk-off’ tone in markets this morning with the USD gaining against ASEAN currencies but losing out to the truer safe havens of CHF and JPY.
In a statement yesterday, the UN Security Council condemned North Korea’s missile launch on Tuesday as an “outrageous” threat against Japan and demand that North Korea does not fire any more missiles. North Korea, meanwhile, said the missile fired over Japan on Tuesday was a “meaningful prelude” to containing the US protectorate of Guam. Trump maintained that ‘all options are on the table’ should the US feel the need to respond militarily.
Dollar was helped by an increase in consumer confidence while respondents also stated that jobs were more plentiful and with fewer people saying that employment was not as ‘hard to get’. We receive the first revision to the US GDP number for Q2 this afternoon and while there may be a slight hop higher in consumption any positivity will likely be tempered by a slide in exports.
GBP: Hurry up!
Brexit headlines this morning are once again casting the UK in a poor light with the EU President Donald Tusk telling the British negotiating team to ‘hurry up’ so as to be able to at least have a deal on the table when the Article 50 countdown ends. Further conversations on the nature of a transition deal are expected in the coming weeks but October’s soft deadline is looming large.
Sterling has rebounded a little overnight but remains at depressed levels and close to the tradeweighted historical lows that we have highlighted for a few weeks now. Last time sterling was this low it prompted a slight response from the Bank of England to bring the pound the higher; will a speech from a BOE member do something similar soon?
Data overnight from the British Retail Consortium has shown that while shop prices are still negative, non-food items are falling at the slowest rate since April 2013; non-food retailers are struggling to keep their prices down with the margin pressure driven by a lack of hedged sterling in the post-EU environment.
The Day Ahead
China watchers will have noticed that USDCNH has cracked lower overnight. There is really not that much to hang this move on but we cannot envisage the pair running that much higher from here until sentiment around the yuan shifts on the Chinese mainland.
Have a great day
Jeremy Cook, Chief Economist