It’s been another interesting week for markets. The ongoing back and forth between the US and China continues and while the press still scream “trade war”, both sides continue to threaten with additional tariffs, there is also some level ground where both sides appear to be taking a more conciliatory tone, with some bouts of odd compliment sharing. The US have also been having discussions on NAFTA as well, and there is no doubt that global trade remains in an uncertain spot. That’s where we sit now and as a result markets have been generally supportive of risk given the worst case scenario has not played out (yet).
Elsewhere however there has been rising tensions around Syria, with the UK and US both mounting pressure on Russia, where additional sanctions have turned Russian markets negative and knocked the value of the ruble in tandem. A very interesting article this morning on Bloomberg highlighted CHF weakness. Swissy now at its weakest level in over three years, with EURCHF rising to levels not seen since the SNB removed the 1.2000 floor. CHF has traditionally been a safe haven currency and we have seen bouts of intermittent strength over the last few weeks but Bloomberg has suggested that the increased sanctions on Russian businesses and oligarchs has resulted in excess selling of CHF, EURCHF is up almost 1% this week already.
The euro however has also had a relatively strong week. That was until yesterday’s release of the ECB minutes. The euro traded down almost .75% from Wednesday’s high level as ECB minutes struck a rather dovish chord, highlighting concerns about recent strong inflation only being temporary, There was also comments about concerns on a trade war and for the first time they appeared to voice concerns on euro strength. Cutting through the jargon, the ECB were concerned that the euro’s appreciation, which they have said has been based on markets reacting to their communications in relation to easing, has resulted in euro strength based on expectations rather than macroeconomic improvements. This resulted in euro selling and while EURUSD still holds above 1.2300, the larger breakdown has been in EURGBP which now trades at its lowest level since May 2017 and there remains potential for progression back to .8510/20.
It’s not just the euro that sterling has been pressing higher, 1.4346 is the post Brexit high and with sterling surging and the USD in retreat, we may well see that level trade today. We’re light on major data from the UK today and for now focus will be stateside on Michigan consumer sentiment this afternoon.