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The Greenback is still the top-performing currency of the day (so far) but its rally stalled during the morning London session. The Greenback did get slapped lower when Trump was interviewed by FOX & friends, but it closed out the session on a mixed note.

As for the other currencies, the Aussie and the Kiwi extended their slide as risk aversion lingered and commodities tumbled.

The pound and the euro, meanwhile, were bid broadly higher, with the euro ultimately coming out on top.

  • French flash manufacturing PMI: 53.7 vs. 53.4 expected, 53.3 previous
  • French flash services PMI: 55.7 vs. 55.1 expected, 54.9 previous
  • German flash manufacturing PMI: 56.1 vs. 56.5 expected, 56.9 previous
  • German flash services PMI: 55.2 vs. 54.3 expected, 54.1 previous
  • Euro Zone flash manufacturing PMI: 54.6 vs. 55.2 expected, 55.1 previous
  • Euro Zone flash services PMI: 54.4 vs. 54.5 expected, 54.2 previous
  • CBI’s U.K. industrial order expectations: 29 vs. 13 expected, 20 previous

Major Events/Reports:

ECB’s meeting minutes

The minutes of the ECB’s most recent monetary policy meeting were released late into the session.

And after reading quickly through the minutes, the general impression is that most of the stuff in the minutes appear to have already been discussed during the ECB presser.

However, it’s worth pointing out that Draghi’s upbeat outlook on the Euro Zone economy is apparently a view that’s shared by other ECB officials since the minutes revealed that (emphasis mine):

“Overall, members considered that the risks surrounding the euro area growth outlook could still be assessed as broadly balanced, notwithstanding the uncertainties related to global factors, notably the threat of protectionism.”

“Members broadly shared the view that uncertainties surrounding the inflation outlook had been receding.”

Other than that, there was also this rather amusing tidbit where ECB officials were basically giving themselves a pat on the back for using the phrase “at least through the summer of 2019” when communicating their forward guidance for future rate hikes, even though the ECB’s choice of language was a bit vague (emphasis mine).

“The Governing Council’s enhanced forward guidance on the future path of policy rates had been effective in aligning market views about the future evolution of policy rates with the Governing Council’s expectation that the key ECB interest rates would remain at their current levels ‘at least through the summer of 2019’. This formulation was considered to have struck an appropriate balance between being sufficiently precise to provide effective forward guidance and maintaining a suitable degree of flexibility.

ECB’s Weidmann speaks

Bundesbank President and ECB Member Jens Weidmann (a well-known hawk) got some press time before the ECB minutes were released.

And, well, he delivered another one of his blatantly hawkish messages when he said that:

“It’s also time to begin exiting the very expansionary monetary policy and the non-standard measures, especially considering their possible side effects.”

“This normalisation process will probably take place only gradually over the next few years. That’s exactly why it has been so important to actually get the ball rolling without undue delay.”

Raab speaks

U.K. Brexit Secretary Dominic Raab was speaking earlier and he said some rather positive-sounding things about the state of Brexit negotiations, namely the following:

“I am still confident that getting a good deal is, by far, the most likely outcome.”

“The vast majority, roughly 80%, of the Withdrawal Agreement has now been agreed, and we are making further progress on those outstanding separation issues.”

“I am pleased we have now agreed with the EU to ‘continuous’ negotiations, as I have been arguing for, to energise the final phase of the diplomacy and to reach a deal that is in both sides’ interests.”

“If, as I expect, the EU responds with the same level of ambition and pragmatism, we will strike a strong deal that benefits both sides.”

Despite all that, Raab also said that:

“[N]aturally we have to got to consider the alternative possibility, that the EU does not match our ambition and pragmatism, and we do not reach a deal.”

And that’s why Raab announced that the U.K. government has released the first set of technical notes on How to prepare if the UK leaves the EU with no deal.

Raab did stress that:

“[A ‘no deal’ Brexit] is not what we want. And it’s not what we expect. But, we must be ready.”

Euro Zone PMI reports

Earlier today, Markit released the latest batch of PMI reports for Germany, France, and the Euro Zone as a whole. And the short of it is that they were mixed but somewhat positive overall.

Focusing only on the PMI reports for the Euro Zone as a whole, the manufacturing PMI reading dropped from 55.1 to a 21-month low of 54.6 in August, contrary to expectations that the reading will tick higher to 55.2.

The services PMI reading, meanwhile, improved marginally from 54.2 to a two-month high of 54.4.

Despite the hard drop for the manufacturing PMI reading, the composite PMI ticked higher from 54.3 to 54.4, just a tick lower from the 54.5 consensus.

And according to Markit, the weaker manufacturing PMI reading was due partly to “new export orders [registering] the smallest monthly rise for two years.”

Another reason cited in the report is that “factory payroll growth slipped to a 17-month low.”

In contrast, “service sector jobs growth struck the highest since October 2007,” which is why the services PMI reading improved slightly.

Anyhow, Chris Williamson, Chief Business Economist at IHS Markit, gave the following upbeat comment:

“The survey data indicate that the eurozone economy looks to have continued to grow at a steady rate in August, raising hopes that the third quarter could see GDP growth match the 0.4% expansion seen in the second quarter. In fact, the survey evidence suggests that the official data so far this year could yet be revised slightly higher.”

However, Williamson also warned that “the risks seem tilted to the downside” since business sentiment in both the service and manufacturing sectors deteriorated because of “Escalating political worries, rising prices and a recent slowdown in order book growth.”

The the manufacturing sector, in particular, is “looking the most susceptible to a trade-led slowdown in coming months,” according to Williamson.

Trump speaks

U.S. President Trump was interviewed by FOX & friends late into the session, which gave most USD pairs a kick lower, so all this political drama is still apparently having an effect on the Greenback.

Risk aversion in Europe

The major European equity indices started the session on a strong footing, but risk aversion was clearly present since they quickly began feeling some bearish pressure across the board, so much so that most were forced to give up their gains and close out the session in the red.

And according to market analysts, the risk-off vibes were due to the ongoing political drama in the U.S., as well as trade-related jitters due to Chinese and U.S. tariffs coming into effect.

  • The pan-European FTSEurofirst 300 was still up by 0.03% to 1,502.77 but off the day’s high at 1,507.13
  • Germany’s DAX was already down by 0.16% to 12,366.49
  • The blue-chip Euro Stoxx 50 was already down by 0.06% to 3,419.75

U.S. equity futures were also down slightly after printing gains earlier.

  • S&P 500 futures were down by 0.05% to 2,859.75
  • Nasdaq futures were down by 0.12% to 7,424.50

Major Market Mover(s):

EUR

The euro caught a bid about halfway through the session. And the apparent catalysts were either ECB Weidmann’s hawkish comments or the somewhat positive PMI reports. It’s not really clear since the PMI reports were released when Weidmann was speaking.

As for the ECB minutes, that actually enticed some sellers to jump in. Even so, the euro managed to close out the session in first place.

EUR/USD was up by 15 pips (+0.14%) to 1.1579, EUR/AUD was up by 37 pips (+0.23%) to 1.5888, EUR/NZD was up by 29 pips (+0.17%) to 1.7351

GBP

The pound was trading sideways for the most part, but was jolted higher when Brexit Secretary Dominic Raab gave some positive updates on Brexit negotiations.

GBP/USD was up by 10 pips (+0.08%) to 1.2884, GBP/AUD was up by 34 pips (+0.19%) to 1.7681, GBP/NZD was up by 26 pips (+0.14%) to 1.9310

AUD & NZD

Most AUD and NZD pairs were actually range-bound during the morning London session. Selling pressure was ever present, though, so much so that both currencies closed out the session with more losses. And we can probably blame the weakness of the two higher-yielding currencies on another bout of risk aversion and falling commodity prices.

AUD/USD was down by 9 pips (-0.12%) to 0.7285, AUD/JPY was down by 12 pips (-0.14%) to 80.74, AUD/CHF was down by 14 pips (-0.20%) to 0.7163

NZD/USD was down by 5 pips (-0.07%) to 0.6670, NZD/JPY was down by 6 pips (-0.08%) to 73.93, NZD/CHF was down by 8 pips (-0.12%) to 0.6559

Watch Out For:

  • 12:30 pm GMT: U.S. initial jobless claims (215K expected vs. 212K previous)
  • 1:00 pm GMT: CB’s leading U.S. index (0.8% previous)
  • 1:00 pm GMT: U.S. HPI (0.3% expected vs. 0.2% previous)
  • 1:45 pm GMT: Markit’s flash U.S. manufacturing PMI (55.1 expected vs. 55.3 previous)
  • 1:45 pm GMT: Markit’s flash U.S. services PMI (55.9 expected vs. 56.0 previous)
  • 2:00 pm GMT: Euro Zone consumer confidence (-0.7 expected vs. -0.6 previous)
  • 2:00 pm GMT: U.S. new home sales (645K expected vs. 631K previous)
  • 10:45 pm GMT: New Zealand’s trade balance (-$400M expected vs. -$113M previous)