Euro Weekly 31 August
It was a slow start to the short week after the bank holiday. After some discontent over the Brexit guidance released by the government and rumblings of a leadership challenge by Boris Johnson for Theresa May’s position, there was finally some good news for the pound. EU negotiator Michel Barnier said that Britain could have a trade deal “such as there never has been”. Investors took this to mean that it would be a good deal and they marked the pound higher. The pound was further supported by French president Emmanuel Macron, who suggested that he would use the EU summit meeting in Salzburg to argue for a deal with Britain. The French president is said to be uncomfortable about the potentially negative effect of a no-deal Brexit on the remaining 27. The response to these announcements was immediate, adding half-cent or more to the pound and sterling continued to move gently higher as the day progressed. Gains included one and a quarter euro cents, one and a half US cents and two and a quarter yen.
In contrast, there was little news coming out of Europe that wasn’t Brexit-related. All three IFO measures of German business confidence beat forecast, which was considered good news given the importance of German industry to Europe.
In the US, there was little news from the Jackson Hole symposium in Wyoming but elsewhere there have been some significant announcements. The White House announced that it is close to finalising a trade agreement with Mexico – the immediate outcome was more positive for the greenback than the peso, which suggests that investors are not unreservedly impressed by the deal struck with Washington. Trump postponed further talks with China in the same week that it became clear that America’s trade deficit did not narrow as a result of protectionist tariffs. The widest deficit in five months, with falling exports and rising imports, was attributed in part of the role of foodstuffs. There had been a rush to export soya beans, in particular, before the Chinese tariffs came in: business tailed off after they were applied. Despite this, the US Bureau of Economic Analysis revealed an upward revision to second quarter gross domestic product. Rather than the 4.0% forecast by economists, growth was an annualised 4.2%.
There has been little reaction to Australia’s new prime minister, Scott Morrison, who stepped into the role on Friday morning following another power struggle in the ruling Liberal party. His wafer-thin parliamentary majority will not allow him to do much more than prepare for the next election. Both the NZ and Australian dollars suffered setbacks this week as a result of weak domestic investment and confidence data, and further political uncertainty is unlikely to help the Aussie.
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