What’s been happening?

Pound Sterling – UK Markets 

The British pound posted strong gains against the euro on Wednesday but closed the day virtually unchanged versus the dollar.

The data published by the UK’s Office for National Statistics (ONS) showed that the Consumer Price Index (CPI) ticked up to 2.1% on a yearly basis in July to come in higher than the market expectation of 1.9%. The core CPI, which excludes volatile energy and food prices, rose to 1.9% in the same period from 1.8%. Further details of the report revealed that the Producer Price Index (PPI) edged higher to 1.8% and the Retail Price Index fell to 2.8% on a yearly basis.

Later in the day, British Prime Minister Boris Johnson said that the EU was not compromising “at all” on the Brexit deal and added that it was more likely for the UK to leave the EU without a deal if their attitude remained the same. "The more the EU thinks parliament can block a no-deal, the less likely they are to compromise," Johnson added. "In the end, our friends in Europe and in parliament will see it is vital to get on and do Brexit." Meanwhile, commenting on a possible trade deal with the UK, "Whatever form it takes, Brexit cannot be allowed to imperil the Good Friday Agreement, including the seamless border between the Irish Republic and Northern Ireland," US House Speaker Nancy Pelosi said in a statement.    

US Dollar – US Markets

The US Dollar Index, which gauges the dollar’s value against a basket of six major currencies, rose to its highest level in more than a week despite the fact that the 10-year US Treasury bond yield and the 2-year Treasury bond yield curves inverted for the first time since 2007. Although this development is widely accepted as a sign of a recession, the greenback didn’t have a difficult time finding demand in the risk-averse atmosphere.

In the meantime, during an interview with CNBC, United States Commerce Secretary Wilbur Ross today said that it was premature to see where either China or the United States was standing in trade negotiations and explained that there was no “quid pro quo” from China amid the Trump administration's decision to delay tariffs on some Chinese imports until December 15. Later in the day, commenting on the sharp drop witnessed in T-bond yields, White House adviser Navarro told Fox Business Network that this was another sign that the Federal Reserve should cut its policy rate. The 10-year T-bond yield erased nearly 6% and slumped to its lowest level since September 2016 and Wall Street’s three main indexes lost more than 2.5%.

Euro – European Markets

The shared currency came under strong selling pressure on Wednesday and suffered heavy losses against both the pound sterling and the dollar as the disappointing macroeconomic data releases are likely to force the European Central Bank to acknowledge the gloomy outlook and make a dovish shift. 

According to Destatis’ advanced estimate, the German economy is expected to contract by 0.1% on a quarterly basis in the second quarter following the first quarter’s 0.4% expansion. On a yearly basis, the economy is seen stagnating in the second quarter. Additionally, the Eurostat reported that the real GDP was expected to grow by 0.2% in the second quarter as anticipated. Other data from the euro area, however, revealed that industrial production in the eurozone contracted by 1.6% in June. 

What’s coming up? 

UK: The UK’s Office for National Statistics (ONS) will release the retail sales data on Thursday. 

US: Retail sales, industrial production, NY Fed’s Empire State Manufacturing Survey and weekly jobless claims will be featured in the US economic docket.

EU: There won’t be any macroeconomic data releases from the euro area on Thursday.