Good morning,

Markets uncertain over economic impact of Harvey

While emergency services and rescue workers heroically pile in hours of relief work across Houston and the wider area, the market’s scratching its head over what the resulting economic impact could be and thereby the direction of the dollar. While reduced economic activity through clipped exports and business closures could crimp growth by as much as 0.2 percentage points in the coming quarter, increased federal spending through relief efforts may balance this out. While the human, political and infrastructure costs could be huge, for now, it looks like the hurricane may be economically unimpactful.

Euro continues to leave other currencies in the dust

EURUSD has topped 1.20 for the first time since January 2015 this morning following the Jackson Hole economic symposium last week which saw neither Fed chair Yellen nor ECB President Draghi materially adding to the rhetoric as to how their respective central banks see monetary policy evolving in the coming months. The fact that Mario Draghi did not expressly use his speech to caution against the recent strength of the euro emboldened those traders who wanted to take the single currency higher, which now sits at multi-year highs against both the pound and the dollar.

Late yesterday, another North Korean missile test was launched from Pyongyang. The difference is, this missile crossed over the island of Hokkaido in Northern Japan – a clear escalation of recent tests. The move has unsettled currency markets, with the typical safe havens of the Swiss franc and the Japanese yen responding positively.

UK urged to ‘get serious’ on Brexit

David Davis, Michel Barnier and their respective teams are back in Brussels to further debate the terms of the UK’s withdrawal from the European Union. The decision by the Labour Party to reverse their position on Brexit and now back a stance that calls for membership of the Single Market is the most significant political move since the General Election. With the election fought, won and the partnership with the DUP Theresa May had successfully managed to depoliticize Brexit given the Labour and Conservative positions were not that far apart; they now are and Brexit is once again a political football with Parliament due to return next week.

In Brussels, we simply must see progress. Reports in the media suggest that the UK’s relative silence on the level of any ‘divorce payment’ will be the next stumbling block as we come up on the October soft deadline for ‘significant progress’ so talks on trade can begin. It is EU Chief Negotiator Barnier’s call alone as to whether we have made “significant progress” and his comments over the weekend suggest that we are a way off from that.

A speech later today from Fed’s Evans isn’t expected to tread any new ground and markets will be eyeing Friday’s nonfarm payrolls first and foremost for clues on how the US economy is faring into the second half of the year.

Have a great day.