Friday AM: GBP Loses its Spark | EUR: PMIs | CAD: Inflation and Retail Sales

Exchange rates

Image © kasto, Adobe Stock

Global markets retain their improved mood, a situation that ensures the likes of the Australian and New Zealand Dollars hold onto their recent gains.

On the other side of the coin are the likes of the U.S. Dollar, Franc and Yen which tend to benefit when markets are nervous. It is understandable therefore that they are short-term under performers in a market that has seen the Dow Jones test fresh highs.

"The performance of the US dollar appears to have been driven more by the improvement in global investor risk sentiment which has triggered a reversal of the US dollar’s gains over the summer. The high beta commodity related and emerging market currencies are staging a relief rally," says Lee Hardman, a currency analyst with MUFG Bank Ltd.

Data-wise, all eyes are on the Eurozone where survey data is released, and later in the day attention turns to Canada where inflation and retail sales numbers are due for release.



The Pound has enjoyed a strong run of late, and over the past 24 hours has hit fresh two-month highs against both the Euro and Dollar.

However, some shine has been taken off the currency's advance by the souring in sentiment towards Brexit negotiations towards the end of the Salzburg summit of European leaders.

The European Union effectively told Theresa May her current plans for the Irish border will not work.

As such, it is back to the drawing board for May.

However Sterling has not suffered a notable decline which tells us markets believe she can deliver.

In short, she will have to move towards the Canada Plus Plus deal advocated by her former Brexit secretary David Davis.

The only question we have is how Canada Plus Plus ensures the U.K.'s red-line of ensuring Northern Ireland is not annexed by the E.U. rulebook is achieved.

Regardless, the Pound is the true barometer of 'no deal' risks, and the currency appears quite relaxed about the whole affair.

We continue to watch Brexit headlines today; they will take on a more domestic flavour as the Conservative party gears up for their annual conference.

On the calendar, we are watching the release of public sector borrowing, markets are expecting borrowing for August to be at £2.85BN. The data rarely moves Sterling but should be of interest in terms of spelling out just how healthy the country's finances are ahead of a potential 'no deal' Brexit.



There are some data points out of the Eurozone today.

At 09:00 B.S.T. manufacturing PMI for September is released, with markets looking for a reading of 54.4.

The services PMI, out at the same time, is forecast to read at 54.4.

And, the cumulative composite PMI is, wait for it, also expected to read at 54.4.

A beat on this number could give the Euro a helping hand and ensure its good run against the Dollar extends.

"EUR/USD is set to end the week on a firm footing after the break of important areas on daily charts above 1.1720 triggered additional momentum purchases yesterday. Both the US dollar’s inability to rally on rising US yields and firm European stock markets provided reasons to buy the common currency," says Roberto Mialich, a FX Strategist with UniCredit Bank in Milan.



The U.S. Dollar is on the backfoot amidst an improved global investor sentiment; a backdrop that has meant markets are no longer demanding the safe-haven Dollar.

"USD lost momentum this week despite UST 10s holding above 3% and trade tit-for-tat is ongoing. The recent price reaction suggests that USD strength is reaching its limits," says a note from the currency desk at TD Securities.



Watch inflation and retail sales data out of Canada today st 13:30 B.S.T.

Core retail sales are expected to have grown 0.6% month-on-month in July, retail sales are forecast to have read at 0.4%.

CPI inflation is forecast to have read at -0.1% month-on-month for August, taking the annualised figure to 2.8%.

"Both retail sales and inflation data are also scheduled in Canada this afternoon and they will probably represent a mixed-bag for the CAD. On the one hand, consumer expenditure is likely to have resumed in July after the drop in June; on the other hand, however, headline inflation is likely to have decelerated somewhat after the 3% yoy jump in June," says UniCredit's Mialich.

Elsewhere, Canada-US trade talks ended yesterday with no agreement and are expected to resume next week as the month-end deadline draws closer.

"The Canadian dollar has further extended its recovery against the USD beyond the 1.29 area since reaching lows close to 1.32 at the start of September. NAFTA negotiations have played a decisive role so far in driving the CAD higher," says Mialich. "Hopes that a deal can be struck relatively soon are likely to offer the CAD a cushion against headwinds for the time being."



Good news for the Aussie overnight after S&P unexpectedly upgraded its AAA/negative rating on Australia to AAA/stable.

The surge in PAYE and company tax receipts in the past year has put the budget balance in a much healthier situation compared with when S&P originally downgraded its outlook in July 2016.

"While it is not new news that Australia's fiscal position is returning to surplus in the early 2020s, and wage growth assumptions may still be on the optimistic side, growth and employment have been sufficiently strong to generate lower expenditure and higher tax receipts than thought two years ago," say TD Securities in response.

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