Market News & Insights
18 August 2017

Euro Remains Resilient

We would first like to send our condolences to anyone who was affected by the terrorist attack in Barcelona, often we see disasters like this heavily impact the financial markets but the euro was as resistant as the Catalonians who have shown no signs of the attack impacting the local economy.

Officials from the most recent minutes for July on Thursday are concerned about the strength of the single currency and its strength being ‘overshot’. The minutes pointed out two main factors for the rise, firstly the removal of political risk with Macron’s win and market expectation over US interest rate rises – crucially the minutes said these two factors were now largely priced out, leaving the euro back around the levels prior to the UK referendum. In terms of looking forward for the single currency, next week we will hear from the ECB’s President Mario Draghi but most investors expect there to be no new policy announcements with the next potential change coming in the autumn speech.

Sterling continues to be under massive pressure recently following the vague and stagnant Brexit negotiations and there has been little positive news or data out elsewhere to support the currency. Yesterday UK retail sales beat the 0.2% expectation slightly coming out at 0.3%, fairly in line with predictions. Focus will remain however on how David Davis fairs over in Brussels and inflation figures.

With several major business leaders such as Jamie Dimon of JP Morgan Chase Bank and Tim Cook of Apple Inc. openly condemning Donald Trump’s reaction to the Charlottesville tragedy, USD has remained unpredictable at best of times. Further mutterings have caused investors to stay away from long positions in USD as it was rumoured that Gary Cohn, Donald Trump’s Economic Advisor, is disenchanted with the role and sees it best to leave the post. FOMC member Kaplan, one of the US Federal Reserve’s most notable hawks, is due to speak and given his inclination towards two more rate hikes in 2017, we might see some added strength in USD. The release of Consumer Sentiment data in the US could also cause an uptick in USD strength, with figures mooted to improve versus last month. As a result, the dollar has making erratic moves – buoyed on the emergence of ever improving economic data but seemingly maligned by Donald Trump’s fractious relationships with his advisors and business leaders alike.

The Canadian economy is expected to fare badly today with its Consumer Price Index (CPI) expected to yield a negative figure for the first time in nearly six months. With consumer prices accounting for a majority of overall inflation, any sharp recess in these figures will cause major banks to offload their CAD positions, resulting in an overall weakness of the currency.