Good morning,

USD: Dollar pressures still strong
The greenback is a little lower overnight as some of the optimism around Friday’s G7 summit dissipated. The leaders of the UK, France, Germany, Italy, Japan and Canada will meet in Quebec, with Donald Trump, to express their displeasure about US trade policy and it is the uncertainty around how Trump will react to such unified opposition that is affecting the US dollar.

The strength of the US dollar has seen more complaints from emerging market economies with the Indian central bank being forced into a rate hike for the first time since 2014 and the Turkish central bank expected to raise rates later today too having seen the lira fall by around 20% on the year versus the USD.
Higher interest rates and the expectation of further hikes in the US drives dollar buying, similarly, tax cuts for US businesses have seen dollars float back into the US economy and out of the coffers of emerging market economies, making their debts more expensive and harder to service.
The Federal Reserve meeting next week may see Governor Powell address these concerns but the monetary, fiscal and trade policy stances of the US economy are causing pain for a lot of emerging market economies.

EUR: GDP could help calls for QE finish

Eurozone GDP is the most crucial thing to watch today with the consensus expecting Q1 final GDP figures to be unchanged from the preliminary estimates of 0.4% on the quarter and 2.5% higher than a year ago. A strong number may be enough to keep the single currency recovering from its Italy-fuelled wobble as investors wait on next week’s European Central Bank meeting to see if June is too early for President Draghi to unveil some concrete plans to wind down the Bank’s quantitative easing program.

Should next week see higher growth and inflation expectations, as well as a continued calm and measured response to the new administration in Italy, then the euro could be a stand-out performer heading through the long hot days of the summer.

GBP: Watching next week’s Brexit

As Westminster prepares itself to vote on the Lords amendments to the EU Withdrawal Bill, the proposals for what the UK’s customs arrangements with the EU will look like after are causing Brexiteers to cry that they have been duped by Theresa May. The “backstop” plan is opposed by Brexiteers because it commits the whole of the UK to elements of the customs union if London and Brussels can’t agree a deal on border controls for goods.

Sterling is not doing much yet; higher against the weakening dollar but lower against the recovering euro. Next week is a more important week but rumours that Brexit Secretary David Davis may resign today could give sterling a shot in the arm.

Have a great day.
Jeremy Thomson-Cook, Chief Economist