The pound got a lift from the get-go, thanks to easing Brexit-related jitters due to Lidington’s comments.
However, the pound would later strap on and ignite its booster rockets when the U.K.’s retail sales report surprised to the upside, allowing the pound to claim the top spot, not just of the morning London session, but of the day (so far) as well.
In other news, another bout of risk-taking in Europe helped to sustain demand for the higher-yielding Aussie and Kiwi, while applying bearish pressure on all the safe-havens (USD, JPY, CHF).
Interestingly enough, the Greenback, not the Swissy, was the weakest currency of the session, even though the SNB repeated its pledge (or threat) to intervene in the forex market and weaken the Swissy.
And that’s probably because the Swissy was trying to track the euro higher since even the Aussie and the Kiwi began ceding ground to the Swissy near the end of the session.
- Swiss trade balance: CHF 2.76B vs. CHF 1.89B expected, CHF 2.24B previous
- SNB Libor rate: unchanged at -0.75% as expected
- SNB sight deposits rate: unchanged at -0.75% as expected
- The Swissy is still “highly valued” according to SNB
- SNB downgraded its 2019 and 2020 inflation projections
- SNB blamed the Swissy’s appreciation for downgrades
- U.K. retail sales m/m: 0.3% vs. -0.2% expected, 0.9% previous
- U.K. core retail sales m/m: 0.3% vs. -0.2% expected, 1.1% previous
Lidington speaks on Brexit deal
Conservative Party MP and Cabinet Office Minister David Lidington was interviewed just as the London session started rolling.
And he gave this very juicy soundbite:
“The withdrawal agreement – we’re 85 percent…90 percent of the way to fixing the text.”
Lidington was also asked if he sees a deal by October or November of this year and he replied as follows:
“Yes I believe that there can be, and I remain, despite the outstanding difficulties, I remain optimistic.”
U.K. retail sales report
The Office for National Statistics (ONS) released the U.K.’s August retail sales report earlier.
And it revealed that headline retail sales volume in the U.K. increased by 0.3% month-on-month, which is great news since the market was expecting a 0.2% decrease.
The previous headline reading was also upgraded from +0.7% to +0.9%. And a closer look at the details show that most retail store types saw an increase in retail sales volume in August. Only the food stores, clothing stores, and petrol stations reported monthly declines in sales.
And that’s why the core reading also surprised to the upside by printing a 0.3% increase as well (-0.2% expected).
The annual headline reading is also impressive since retail sales volume increased by 3.3% year-on-year, which is a significantly stronger reading compared to the expected 2.3%.
And as icing on the cake, the previous annual reading was also revised higher from +3.5% to +3.8%.
SNB monetary policy decision
As widely expected (and as usual), the Swiss National Bank (SNB) announced that it was maintaining its current monetary policy.
The target range for the Libor rate is therefore still between -1.25% and -0.25%, with the median target rate at -0.75%. The interest rate on sight deposits was also steady at -0.75%.
The SNB also pointed out that “the Swiss franc has appreciated noticeably, against the major currencies as well as against emerging market currencies.”
And since the Swissy is still “highly valued,” the SNB renewed its promise (or threat) to “remain active in the foreign exchange market as necessary” (*cough* currency manipulator *cough*) since weakening the Swissy and the SNB’s negative rates “remain essential in order to keep the attractiveness of Swiss franc investments low and thus ease pressure on the currency.”
Other than that, the SNB also upgraded its GDP growth forecast for 2018 to “between 2.5% and 3%,” thanks to stronger-than-expected GDP growth in Q2, as well as the “favorable” outlook presented by leading indicators. The SNB was projecting GDP to only grow by 2.0% during the June SNB statement.
As for inflation, the SNB’s inflation forecast for 2018 was unchanged at 0.9%, but it downgraded its 2019 inflation projection yet again (0.8% vs. 0.9% previous). The SNB also downgraded its inflation projection for 2020 from 1.6% to 1.2%.
And the SNB bluntly stated that “the new conditional [inflation] forecast lies below the June forecast as a result of the appreciation in the Swiss franc.”
Jordan speaks (against the Swissy)
SNB Overlord Thomas Jordan was interviewed after the SNB announced its monetary policy decision. And Jordan jumped on the opportunity to try and jawbone the Swissy by blaming the SNB’s unchanging monetary policy stance on the Swissy’s appreciation.
“The franc has appreciated, which has also led to a tightening of monetary conditions.”
“That is also the main reason why our monetary policy must remain expansive.”
Risk-friendly day in Europe
Almost all of the major European equity indices were glowing gamma green during the session, so risk-taking was apparently still the name of the game in Europe.
And according to market analysts, today’s bout of risk-taking was due to positive corporate news and growing hopes that the U.S. and China may be able to settle their differences and ultimately end the ongoing trade war.
- The pan-European FTSEurofirst 300 was up by 0.57% to 1,494.40
- Germany’s DAX was up by 0.52% to 12,281.99
- The blue-chip Euro Stoxx 50 was up by 0.74% to 3,394.05
Major Market Mover(s):
The pound started the session running, thanks to easing Brexit-related jitters, with Lidington’s comment being cited by market analysts as the catalyst for the pound’s rise.
However, demand for the pound would really ramp up later on, thanks to the U.K.’s better-than-expected retail sales report. And buying pressure was so strong that the pound easily steamrolled its peers (including the higher-yielders) to claim the top spot, not just of the morning London session, but of day (so far) as well.
GBP/USD was up by 126 pips (+0.96%) to 1.3278, GBP/JPY was up by 138 pips (+0.94%) to 148.95, GBP/CAD was up by 129 pips (+0.76%) to 1.7127
The euro has actually been climbing higher on most pairs since the earlier Asian session.
And while it initially had a harder time against the Aussie and Kiwi, the euro was able to stand its ground against the higher-yielders, while also taking ground from everything else (except GBP).
But even the Aussie and Kiwi were later forced to bend the knee when the euro got a bullish boost near the end of the session.
There was no apparent reason for the euro’s rise during the earlier Asian session and there’s still no apparent catalysts for the euro’s rise during today’s morning London session.
However, it’s likely that the euro is just feeding off the Greenback’s weakness since the euro started getting buyers at around the same time that the Greenback started to weaken.
EUR/USD was up by 75 pips (+0.64%) to 1.1758, EUR/JPY was up by 79 pips (+0.61%) to 131.89, EUR/CAD was up by 64 pips (+0.43%) to 1.5165
Another risk-friendly day in Europe, so another day of bashing the safe-havens. And this time, it was the Greenback that got the worst of it.
As to why the Greenback’s on the back foot, unwinding of safe-haven bets is the likely reason since easing trade-related jitters are being cited as a reason for the risk-friendly vibes. Other market analysts are of the same opinion.
USD/JPY was down by 4 pips (-0.04%) to 112.16, USD/CAD was down by 29 pips (-0.23%) to 1.2896, USD/CHF was down by 43 pips (-0.45%) to 0.9623
Watch Out For:
- 12:30 pm GMT: ADP’s Canadian non-farm employment change (11.6K previous)
- 12:30 pm GMT: U.S. initial jobless claims (210K expected vs. 204K previous)
- 12:30 pm GMT: Philadelphia Fed’s manufacturing index (15.8 expected vs. 11.9 previous)
- 2:00 pm GMT: Euro Zone consumer confidence (-2.0 expected vs. -1.9 previous)
- 2:00 pm GMT: CB’s leading U.S. index (0.5% expected vs. 0.6% previous)
- 2:00 pm GMT: U.S. existing home sales (5.37M expected vs. 5.34M previous)
- 3:15 pm GMT: Bundesbank President Jens Weidmann is scheduled to speak