USD: Trump focus falls on Afghanistan
The main non-eclipse news from the US yesterday was a Presidential announcement of an increase in troop numbers for the war in Afghanistan. If I was being cynical I would say that Trump is returning to the tried and tested policy of any embattled President/PM and diverting attention from domestic issues to troop movements abroad. He asked Americans to “trust” him and this decision although the decision is more General Mattis’ – the most trusted member of the Trump Administration.
This comes at a time wherein a poll last week showed that 75% of Americans do not trust the communications coming from the White House. Do investors listen to Trump anymore? Initially, on a subject, yes but then when the world realises that he has become bored or distracted by something else then his influence on markets diminishes. He is almost a lame duck on policy matters internally but while the spectre of North Korea remains he still has the ability to throw everything into the air.
Yesterday was a quiet day in the US courtesy of most of the population staring at the solar eclipse, while we were always taught to not wish time away, little is likely to happen until Thursday’s beginning of the Jackson Hole economic symposium.
GBP: Fresh lows in GBP/EUR
Another day, another run of Brexit position papers from the UK government that are little more than a request for the moon on a stick. More will be released today but as long as the EU is unable to fully believe that ‘significant progress’ has been made on matters such as the Irish border, the rights of each other’s citizens and the ‘divorce’ bill then nothing on trade will be floated. The deadline is October and while these papers may be setting out the UK’s position, progress on an agreement still looks to be a long way off.
The key thing for the euro this week is Mario Draghi’s speech in Jackson Hole. When he takes the stage he will be thinking of his speech in Sintra, Portugal that markets ran with the wrong end of the stick. We expect vagueness from the head of European Central Bank on Thursday and we wouldn’t rule out a run higher for EUR/USD and EUR/GBP.
As we have said before, sterling versus the euro is now the Brexit cross. It used to be GBP/USD but the actions of the Trump administration and the ongoing situation with North Korea have made that pair a bit of a mess. The juxtaposition comes from a European economy with a secure political foundation, including the upcoming election in Germany, and an economic recovery that is becoming more embedded by the month with a British economy that is becoming stagnant and a central bank unable to create a belief on interest rate rises.
The Day Ahead
The data calendar is quiet this morning and will likely only pick up in importance on Thursday with UK GDP and the beginning of the Jackson Hole economic symposium meetings.