US Dollar touches four week low after US-Mexico trade deal

he preliminary agreement with Mexico was hailed by the US President as a ‘good deal’ on Monday and could ultimately replace the North American Free Trade Agreement (NAFTA), something that Trump has long been rallying to scrap. News of a deal represents a shift to a slightly more conciliatory approach to trade policy from Trump and has ignited hopes that more countries will follow with similar agreements. Investors have subsequently piled back into those currencies deemed riskier. The US Dollar, seen as a safe-haven during trade uncertainty in recent months, has shed over half a percent since European open on Monday morning.

Revised US GDP data for the second quarter of the year could prove to be the main market mover today. Economists have pencilled in a modest downward revision to a still very healthy 4.0% from 4.1%.

Italian government asks ECB to extend QE programme

Yesterday’s rally in the US Dollar did, however, ease back against the Euro this morning. Reports that the Italian government has asked the European Central Bank to resume its QE programme in order to shield Italian bonds from a downgrade weighed on the common currency. These demands are very unlikely to be met by the ECB, in our view, which announced back in June that it would be ending its large scale asset purchasing programme at the end of the year following a short tapering period.

With no economic news out of the Eurozone whatsoever today, the Euro is likely to be driven largely by external factors. Currency traders will now have one eye on Friday’s inflation data for August.

Currency traders prepare for delayed Brexit deadline

Activity in the UK hasn’t quite managed to get going just yet following the long bank holiday weekend. Sterling has been relatively range bound throughout much of the past few sessions as investors eagerly await news on Brexit developments before committing to positions in either direction. With each day that ticks by, the market is becoming increasingly confident that the EU divorce deal deadline could be delayed, with an October agreement date looking unlikely to be met.

This week looks set to be a relatively quiet end to the typically subdued month of August as far as macroeconomic data is concerned. With that in mind, the Pound is likely to be driven largely by external news.