Midweek: Global Trade War Reignite | GBP - Firms | CAD - Bank of Canada | EUR - ECB Speakers | USD - PPI Data

Exchange rates

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Global: Risk-Off on Trade War Flare-up

Trade wars are back on the agenda mid-week following the unveiling by US President Donald Trump of another $200bn in tariffs on Chinese products, including consumer goods.

We have seen how the trade war narrative plays broadly supportive for safe-haven currencies such as the Yen and Franc, while playing negative for the likes of the New Zealand and Australian Dollars.

Indeed, we are seeing both AUD and NZD lower today and expect global investor sentiment to dictate movement for these currencies over coming hours.

True to form, the South African Rand is another significant loser in this environment.


The Pound: Holding Steady


Sterling looks firm heading into the mid-week session, holding onto the recovery garnered on Tuesday as markets realised unseating May is not likely to be an easy task for those members of her party who want a cleaner / harder Brexit than that currently being proposed by their leader.

"We think both a no confidence and leadership challenge are looking increasingly unlikely," says Sue Trinh with RBC Capital Markets.

Indeed, even were a no confidence vote triggered, it is hard to see Brexiteers garnering the more than 50% support from the parliamentary party required to prompt a leadership election.

"We believe UK Prime Minister Theresa May is unlikely to face a leadership challenge for now. This view appears to be shared by Jacob Rees‑Mogg, chairman of the Eurosceptic European Research Group (the group has around 60 MPs as members) who later yesterday said he did not anticipate a vote of no‑confidence in the UK prime minister," says Richard Grace at CBA.

Further developments have seen the EU's chief Brexit negotiator Michel Barnier strike a cautiously positive tone in an appearance in New York. Barnier says negotiations are 80% complete and he expects further clarity to be provided by the UK government's white paper, due for release on Thursday.

We believe the release of the paper and the EU's response to be the next key test for Sterling.

Sterling may today take some guidance from a 4.35 B.S.T. speech by Bank of England Governor, Mark Carney, who speaks to the U.S. National Bureau of Economic Research (NBER) conference in Boston. This private meeting may be light on details from a monetary policy angle as Carney’sviews about the Q1 slowdown in the U.K. economy being largely weather affected are well‑known.


Canadian Dollar: Bank of Canada Guidance


At 15:00 B.S.T. the Bank of Canada is widely expected to hike the overnight to 1.50% and therefore the move itself should have limited impact on the currency.

What will matter will be the tone on the outlook struck by the Bank of Canada's Governor Poloz at his 16:15 B.S.T. news conference - if the market believes further interest rate rises are likely, the currency could find a lift.

If not, then the Canadian Dollar could perform poorly today.


The Euro: ECB Speakers


There are a number of European Central Bank speakers today at the ECB's statistics conference titled “20 years of ESCB statistics: What’s next?". President Draghi addresses the audience at 8am BST, Peter Praet chairs a session at 8:30am, and Yves Mersch chairs a session at 1pm. Daniele Nouy wraps up proceedings at 16:30.

The problem with speeches is that often they tend to not cover monetary policy. In which case, the events can pass by with little impact on foreign exchange markets.

However, any guidance on interest rates and quantitative easing can move currencies. "Draghi will likely reiterate his constructive Eurozone economic and inflation outlooks, which should generate some support for EUR," says CBA's Grace.

We will watch the newswires for details on this and bring coverage of any significant statements and reactions.


US Dollar: Price Data on Tap


For the Dollar, the broader uptrend appears to have stalled for now and we await any rejuvenation of the push higher. What would trigger such a move is hard to see at this stage.

Domestic data will be watched today - recall one of the drivers of the Dollar's rally of late has been the strong performance by the economy. Therefore, today's data could be of interest as any misses could signify that the period of US economic outperformance is fading which would in turn reinforce the Dollar's July soft patch.

We would therefore expect risks to be to the downside.

PPI is in focus at 13:30, this should give a flavour on inflation trends. Markets are looking for a reading of 0.2% for June.

Keep an eye on Fed speakers Bostic and Williams, they will be speaking and could well give guidance on future Federal Reserve interest rate policy moves.

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