What’s been happening?

Pound Sterling – UK Markets 

For the fourth straight day, the British pound struggled to make a decisive move vs the dollar but fell to its weakest level in two years vs the euro before closing the day virtually unchanged as investors refrained from making large bets ahead of Friday’s key macroeconomic data releases from the UK. 

Meanwhile, according to the Financial Times, British Prime Minister Boris Johnson is expecting to face a confidence vote after lawmakers return from the summer break. Commenting on that matter, a senior 10 Downing Street official said that if they are forced to hold a general election, they will have the control over the time table and that they will opt-out to hold it after Brexit deadline of October 31. Later in the day, British Foreign Secretary Dominic Raab repeated that if Irish border backstop in its current form is not removed, the EU will be taking responsibility to see the UK leave without a deal. 

US Dollar – US Markets

The long-overdue recovery in the 10-year US Treasury bond arrived on Thursday and helped the dollar stay resilient against its major rivals. The weekly data published by the US Bureau of Labor Statistics on Thursday revealed that the initial jobless claims rose 209,000 in the week ending August 2 and came in better than the market expectation of 215,000. Other data showed wholesale inventories stayed unchanged in June following May’s 0.2% growth but was largely ignored by the market participants.

Later in the day, US President Trump argued that the Fed’s monetary policy was keeping the dollar high and making it difficult for American manufacturers to compete. “With substantial Fed cuts (there is no inflation) and no quantitative tightening, the dollar will make it possible for our companies to win against any competition,” Trump tweeted out and said that the Fed “called it wrong at every step of the way.” Echoing the same sentiment, White House trade adviser Navarro told Fox Business that he was expecting the Fed to cut the policy rate by 75 basis points to 100 basis points by the end of the year. “Not because this economic is weak, but because of this spreading problem,” Navarro said.

Euro – European Markets

The latest political headlines from Europe made it difficult for the euro to continue to outperform its major rivals and the shared currency closed the day modestly lower against both the dollar and the pound sterling. In its monthly Economic Bulletin, the European Central Bank repeated that the prolonged uncertainty is dampening economic sentiment, most notably in the manufacturing sector. “Drop in the global services output PMI in Q2 raises the risk of a more broad-based deterioration in the global growth outlook,” the ECB said. “Data and survey information point to somewhat weaker eurozone growth in the coming quarters.”

Meanwhile, concerns over a snap election in Italy triggered a sell-off in Italian Treasury bonds and caused the yield on the 10-year reference to rise more than 10% on the day.  Italy's ruling League party noted that they do not want a cabinet reshuffle and that they reject the idea of a technical government. "The only alternative to the current government is new elections," League said. Widening Italy - Germany bond yield spread weighed on the euro. However, citing a senior government official, Reuters on Thursday reported that Germany was considering the issuance of new debt to finance the climate protection package and helped the shared currency recover its losses by suggesting a lesser need for stimulus. 

What’s coming up? 

UK: The UK’s Office for National Statistics will release the second-quarter GDP growth data which is expected to edge lower to 1.4% on a yearly basis from 1.8% in the first quarter. The ONS will also publish manufacturing production, industrial production, trade balance, and total business investment data.

US: The US Bureau of Labor Statistics’ Producer Price Index (PPI) data will be featured in the US economic docket on Friday. 

EU: Trade balance data from both Germany and Italy will be published on Friday.