A typically slow week of late summer trading was dominated by political noise from the White House.
This week looks similarly thin on the news front. Eurozone flash inflation out Friday is probably the most meaningful release. We will be closely following it for any signs that inflation in Europe is finally trending up towards the ECB target.
Major currencies in detail
GBP
A mixed week for Sterling, which joined in the general G10 rally against the US Dollar but failed to keep up with the Euro. News surrounding Brexit negotiations are yet to take a positive turn. The UK Government implicitly admitted that the October deadline for an agreement was no longer tenable, and released further details of preparations for a no-deal outcome.
EUR
The common currency put in the best performance of any G10 currency last week. The PMI indices of business activity were solidly above 54, and German GDP growth came out at a reasonably strong 0.5% for the quarter. All eyes are now on this week’s inflation data out Friday. We think that a meaningful Euro rally from current levels will need to wait until we see a clear timeline for ECB hikes, and this in turn will depend on core inflation data showing a clear trend upwards that has been elusive so far.
USD
In addition to Trump’s comments on Federal Reserve policy, news that his former lawyer Michael Cohen was cooperating with investigators and that his former campaign manager Paul Manafort were convicted of fraud and tax evasion seem to rattle the US Dollar. Fed Chair Powell reiterated his gradualist line on further interest rate hikes. The net result of this was a rough week for the US Dollar, which brought the Euro close to the 1.17 level.
We do not expect sharp swings in the Dollar from current levels until the path towards higher interest rate levels in the rest of the developed world is clarified by the respective central banks.