The Dollar enjoyed a modest rally against major currencies yesterday afternoon but has come off the boil this morning. Ultimately the past three trading sessions have provided little clear direction for the Dollar, Euro or Sterling. Even the Australian Dollar has recovered against the US Dollar today despite news that Treasurer Scott Morrisson will replace Malcom Turnbull as leader of the ruling Liberal Party and Prime Minister after having won an internal leadership ballot. The Australian Dollar had been under pressure mid-week as political instability set in but the recovery in the AUD/USD cross to near 0.73 suggests that markets may not be overly concerned by this change in leadership. After all Australia has now had six prime ministers in the space of 10 years.
Sterling has recorded a similar pattern, with GBP/USD down to 1.28 overnight but back up to 1.284 at time of writing. The British government, as planned, yesterday released the first batch of 24 technical notices” which aim to prepare the government, businesses and households in the event of the UK leaving the EU on 29th March without a deal in place. These notices were indeed technical in nature and heavy-going for all but the most assiduous reader and the more controversial notices are expected to be released last. Leaving the EU without a deal is very much Plan B (or even C) for Theresa May’s government and the bigger question is whether it has enough time and savvy to negotiate a Brexit deal which is acceptable to both the British and EU parliaments and ultimately to the British public.
Macro data calendar is again light today, bar the release of US durable goods orders for July. Durable goods orders, which are good proxy for fixed investment in the US economy, have been broadly unchanged since March. Like retail sales this is a relatively volatile data series and the consensus forecast is for a 0.5% contraction after a 0.8% gain in June. This is unlikely to trouble markets or the Federal Reserve, with the latter on course to hike rates 25bp at its September policy meeting. Chairperson Jerome Powell is likely to reiterate the Fed’s reasonably bullish message about the US economy when he speaks later today at the Economic Symposium in Jackson Hole, Wyoming, which is attended by central bankers, finance ministers, academics, and financial market participants from around the world.
