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Global market watch - 18th August 2017

USD
The Buck traded lower against most of its rivals yesterday afternoon after a strong start to the day, largely as a result of domestic political tensions coupled with diminished expectations of further FOMC tightening after the more dovish than expected Fed minutes on Wednesday.  In addition, the Barcelona terror attack dominated headlines yesterday. President Donald Trump’s most recent controversy weighed on the US Dollar.  Firstly, eight chief executives have quit two of the President’s business advisory councils on Wednesday, in protest over U.S. President Donald Trump’s controversial remarks on weekend violence in Virginia.  In addition, rumors that White House Economic Adviser Gary Cohn may leave the administration weighed on the Dow and the Greenback, despite his denial that he is resigning his position. Ultimately, this most recent issue over President Trump’s reaction to the “alt-right” violence over the weekend has only made it more difficult to legislate his agenda as it has created more difficulty for him with Republicans and Democrats alike. We have the Preliminary University of Michigan Consumer Sentiment Survey on tap today, along with Dallas Fed President Kaplan speaking later this morning. 

CAD

The Canadian Dollar got an immediate boost from an on target CPI reading this morning.  The headline Canadian CPI release came in at 0% as expected.  While a 0% CPI reading is certainly not blockbuster, it is on target and the fact is that the Bank of Canada (BoC) has stressed it is tightening policy in anticipation of inflation increasing in the foreseeable future.  The Loonie started to strengthen significantly in its pairing with the beleaguered Greenback yesterday, on the broad US Dollar weakness, and has extended these gains today.  In addition, the Commodity Currencies generally performed well both yesterday and overnight with an uptick in oil and gold prices. 

EUR
The Euro gained in its pairing with the Greenback yesterday after a very soft start, largely on the US Dollar’s weakness rather than Euro strength.  Yesterday’s European Central Bank (ECB) Monetary Policy Meeting Accounts which specifically mentioned concerns regarding the potential for an inflated Euro, and the fact that ECB wanted to make sure they had the “flexibility … and flexibility to adjust policy … if and when needed, in either direction.”  A significantly elevated Euro would provide policy makers a challenge as they prepare to exit from monetary stimulus. In addition, inflation remains below the ECB’S target of 2%, and yesterdays’ CPI figure reflected this coming in as forecast at 1.3%. Furthermore, market participants were disappointed by a report that claimed ECB President Mario Draghi will not make any new comments regarding monetary policy at next week’s Jackson Hole Conference in the US. The Eurozone Current Account was lower than expected at 21.2B versus the 27.3B consensus, but German PPI MoM was a bit above expectation at +0.2% against the 0% expectation.

GBP
Sterling ticked up a touch against the Buck, but remained very sideways.  Yesterday’s UK Retail Sales figure was above target at +0.3% compared to the 0.2% consensus, but the previous figure had a significant downward revision from +0.6% to +0.3%.  On a positive note, despite the revision lower, it does prove that spending is defying expectations against a backdrop of Brexit negotiations, weak wage growth and above target inflation. That said, Brexit uncertainty seems to continue to weigh on the Pound as well.  The UK is preparing to give further details of its approach to Brexit next week when it lays out positions in at least three different areas that it wants to negotiate with the European Union (EU). Prime Minister Theresa May’s government will publish two papers on Monday with more expected in the following day.   The UK and EU are expected to have a fresh round of Brexit negotiations at the end of this month according to three people familiar with the situation.

ROW

The Commodity Currencies were bolstered by higher gold and oil prices overnight despite a hit to risk appetite with lower global equities and the terror attack in Spain.  There was no data in Australia or New Zealand overnight, but Wednesday evening’s (ET) much better than expected Australian Employment Change helped push the antipodeans higher as well.  Additionally, it seems the North Korea tension is a bit more out of focus with other events taking center stage this week.

The Japanese Yen traded stronger yesterday, and extended these gains overnight, on market risk aversion, lower US Treasury yields this week, and generally broad sales of the US Dollar.  There was no data in Japan overnight. The Yen is benefitting from the broad USD weakness that started yesterday combined with its safe haven status.

The Swiss Franc hit a one-week peak as it followed the Euro higher yesterday on broad US Dollar weakness. There was no data in Switzerland this whole week except PPI on Tuesday.  While Swissy seems to have lost some of its safe haven status, it has retained some of this and that is also helpful in this environment.
 

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