Good morning,

USD: Trump makes a deal on the debt ceiling

Trump has recovered ‘The Art of the Deal’ by gaining an agreement with Congressional Democrats to extend the US debt ceiling until December as well provide funding for the recovery and clean-up from Hurricane Harvey. This will not prevent a shoot out on the debt ceiling in December nor does it ensure that the US government doesn’t ‘shut down’ due to a lack of funding. A continuing resolution to keep current Federal spending going must be signed by the end of the month or all government services apart from police, fire and various security agencies will go dark until a deal is done.

This ended the US session with the dollar on a high but that impetus faded as Asian markets once again sold the greenback on fears over the North Korean situation.

Last night’s Beige Book – a survey of economic conditions in regions around the US – was as enlightening as anything called ‘beige’ could be. The overall picture in the States remains one of modest wage pressures and lower corporate profitability.

EUR: Strong ahead of the European Central Bank meeting this afternoon

Mario Draghi will likely look relaxed and refreshed following his holiday in the Mediterranean but today’s rate decision and press conference could mark the top for the euro in the near term. The run higher in the single currency while also predicated on weakness elsewhere has been based on the belief that the European Central Bank is getting more comfortable with the idea of tapering its current asset purchase program. Today’s press conference will allow the ECB President to either bat that balloon higher or pop it.

Some expectations as preface; we are not confident on inflation pressures anywhere at the moment and recent headline and core inflation measures have disappointed. The euro has been on an imposing run of late and as we come to this meeting EURUSD is around 10% stronger than it was when the European Central Bank forecasted slow inflation in June; that will not have improved.

There is also the obvious feeling that any hawkishness from Draghi will only strap rockets to the already flying single currency.

Our expectations are that Draghi takes the single currency lower this afternoon and that could easily be enough to give GBPEUR enough of a boost to get its nose above 1.10 before the European close.

The rate decision – wherein nothing will happen – is at 12.45 with the all-important press conference at 13.30.

UK – waiting on output data tomorrow

There is little on the UK data docket today and sterling could easily take its cues from the opening of the 2nd reading of the EU withdrawal bill in the Commons today. More important will be tomorrow’s output numbers from the construction, manufacturing and industrial sectors.

The Day Ahead

We expect prices to remain quite choppy until Mario Draghi takes to the stage after lunch.

Have a great day.

Jeremy Cook, Chief Economist