- Sterling recovers on potential Brexit deal ahead of GDP data
- Euro dragged down by Turkish exposure
- USD gains on safe haven flows
- Strong Japanese GDP growth boosts Yen
By David Johnson
The Australian Dollar is more than a cent weaker against the Pound this morning after the Reserve Bank of Australia released its statement on Monetary Policy. The statement showed a slight change of heart on the part of the RBA; a drop in their inflation expectations but upgraded employment and growth projections. Nonetheless, it was the reduction in the expectation of interest rate rises that weakened the Aussie Dollar.
We also had very strong GDP growth from Japan overnight. That 0.5% growth is immense by recent standards and the Yen strengthened significantly as a result. The Yen is also benefitting from safe-haven investor flows whilst trade wars cause stress in other markets.
Sterling has bounced back against many currencies overnight after taking a battering earlier in the week. The Pound’s steadiness in the past 24 hours may have a lot to do with the fact that the EU is said to be mulling a deal that would maintain trade with the UK but add restrictions on freedom of movement for citizens. That isn’t necessarily an economically positive thing but it may mean a deal can be struck in the Brexit negotiations. This morning brings a veritable smorgasbord of UK data. We expect Q2 GDP growth to be upgraded slightly and we expect decent industrial and manufacturing production data, plus a small drop in the trade deficit. If these forecasts are all good, the Pound has every reason to strengthen across the day.
The Euro is on the back foot amidst fears that the slump in the Turkish economy and the Turkish Lira will impact European banks, many of which have exposure in Turkey. The Turkish Lira hit an all-time low yesterday….well an all-time low since the last revaluation, before which it hit a series of all-time lows. Turkey has a long and illustrious history of devaluing the Lira, the last iteration of which, knocked 6 zeros off the value.
The US Dollar continues to strengthen as investors flow into the US markets and as it becomes more obvious that the Federal Reserve will have to start normalising its monetary policies. Initial jobless benefit claims continued to reduce, as shown in yesterday’s figures and the US unemployment rate has fallen from 10% in 2009 to just 3.9% today. That is as close to full employment as any country is likely to get. We should see their consumer inflation number stay at 2.3% or thereabouts today. Such low levels of unemployment cause wage price inflation and that is running at roughly 4.9%, boosting disposable income and putting pressure on the Fed to control any consumer exuberance.
It is a good problem for a central bank to have but it does also bring into question what will happen when the Fed starts to suck liquidity out of the US financial system. A lot of that $4.35 trillion of cheap money has found itself into stocks and bonds and there will be repercussion in those US markets and others around the world; such is the international nature of investment these days.
Canada releases employment data for July today. Growth of circa 17,000 jobs is forecast, as is a small drop in the unemployment rate to 5.9%. This is all good for the Canadian Dollar, which should strengthen on the news in spite of the delays on Canada’s negotiations with the US on the NAFTA trade deal.
On the first day of college, the Dean addressed the new students on the rules of the college and the residences.
"The female dormitory will be out-of-bounds for all male students, and the male dormitory will be off limits to the female students. Anybody caught breaking this rule will be fined £20 the first time. Anybody caught breaking this rule the second time will be fined £60. Being caught a third time will cost you £180. Are there any questions?"
One student raised his hand and asked, "Is there such a thing as a season ticket?"