What’s been happening?

Pound Sterling – UK Markets 

The British pound gained value against both the dollar and the euro on Monday. However, the fact that there were no macroeconomic data releases or political developments supporting this move suggested that the Monday’s price action was a technical correction of last week’s losses.

According to a Reuters report, John Bolton, assistant to the US President Donald Trump for National Security Affairs (NSA), told British officials on Monday that President Trump wants to see a successful Brexit that the US will support with a free trade agreement. Speaking to reporters later in the day, British Prime Minister Boris Johnson’s spokesman said that the PM is very clear that he wants to get a Brexit deal and reiterated that the PM hopes the EU will understand their determination to leave the EU on October 31. The spokesman also noted that the PM had no scheduled meeting with Irish Prime Minister Leo Varadkar.

US Dollar – US Markets

The US Dollar Index, which tracks the dollar’s value against a basket of six major currencies, struggled to retrace last week’s losses on Monday as falling US Treasury bond yields continued to weigh on the currency.

China’s central bank on Monday kept the USD/CNY rate above 7 for the third straight day to revive concerns over a currency war and weighed on the market sentiment. Assessing the situation, rating agency Moody’s on Monday said the US labelling China as a currency manipulator would escalate the trade tensions. “Worsening trade and currency tensions between the US and China will curb global growth," Moody’s said. The 10-year T-bond yield lost more than 5% on Monday, putting more pressure on the Federal Reserve to address risks associated with yield curve inversion and adopt an aggressive dovish stance. Meanwhile, the only data from the US showed that the US budget deficit widened to $119.7 billion in July amid increased spending on the military and healthcare.

Euro – European Markets

The shared currency posted modest gains against the dollar on Monday but weakened versus the pound sterling. In its latest quarterly survey, Germany’s Ifo Institute said that the global economic outlook has deteriorated over the summer due to heightened US-China trade dispute. “Respondents also expect weaker private consumption, lower investment activity, and declining short- and long-term interest rates,” said Ifo president Clemens Fuest.

In the meantime, political turmoil in Italy continued to push the German-Italy 10-year bond spread higher, making it difficult for the shared currency to find demand. Italian Deputy Prime Minister and Five-Star movement leader Luigi Di Maio on Monday told reporters that the Five-Star wanted a snap election and added that the Deputy Prime Minister Salvini will pay the price for stabbing Italy in the back.

What’s coming up? 

UK: The UK’s Office for National Statistics (ONS) will release the labour market report on Tuesday that will include ILO unemployment rate, claimant count change, and average earnings figures.

US: The US Bureau of Labor Statistics will publish its inflation report. Markets expect the core Consumer Price Index, which excludes volatile food and energy prices, to remain unchanged at 2.1% on a yearly basis in July. 

EU: The European economic docket will feature Wholesale Price Index and Consumer Price Index data from Germany. The ZEW will release the Economic Sentiment report for Germany and the eurozone on Tuesday as well.