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23 August 2019


Following some downside pressure in early trading yesterday, the pound generally tracked a bit higher over the morning but buying was tentative. The latest CBI reported sales report saw the headline fall to its lowest level since December 2008 which is also the second-weakest on record. The pessimistic outlook for retailers unsurprisingly stems from Brexit uncertainty and further highlights the prospect of a recession with consumption expected to remain weak. The real action in sterling came in the afternoon session when optimistic comments from German Chancellor Merkel on the prospect of a Brexit deal sent the pound sharply higher across the board.


The euro was boosted early yesterday as individual and region-wide PMI flash estimates all bettered estimates. French manufacturing moved back into expansion territory following contraction in July but ultimately with German and region-wide manufacturing remaining deep in recession-like territory, the headlines masked the real detail. As such, knee-jerk buying proved to be short-lived and euro selling quickly resumed. However, dollar weakness in the European afternoon session helped steady the single currency.

US dollar

Reaction to Wednesday evening’s Fed minutes was muted despite a more hawkish slant than many had anticipated with most policymakers viewing the end-July rate cut as a ‘mid-cycle adjustment’ rather than the beginning of a series of rate cuts. Initial dollar buying on those headlines was quickly reversed as investors turned their attention to the start of the Jackson Hole gathering. If the Fed looks like moving towards market consensus of another two cuts this year, then we are likely to see the dollar come under fire. Markit PMI flash estimates were soft and nudged the dollar lower in mid-afternoon trade. Manufacturing slipped from 50.4 to 49.9 while services fell to 50.9 from 53.0. Despite continued calls for rate cuts from President Trump, Fed officials have shown a less dovish tendency so all eyes will be on Fed Chair Powell this afternoon.

Data and events

Today’s solitary release is new home sales from the U.S. It’s a minor data point at the best of times and in the current climate will have little impact on FX markets. In any case, the main event today should be Fed Chairman Powell’s speech at Jackson Hole.

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