What’s been happening?

Pound Sterling – UK Markets 

The British pound gained more than 1% against both the dollar and the euro in an impressive way on a daily basis on Thursday boosted by hopes of the UK leaving the EU with a deal.

French President Macron, who yesterday said that British Prime Minister Boris Johnson’s Brexit terms were not workable, today adopted a softer tone while speaking to reporters ahead of his meeting with PM Johnson. Macron said that a no-deal scenario was not the EU’s choice but added they need to ready for it. "My position has always been to respect the UK's decision to leave EU," Macron added. Responding to PM Johnson’s request to reopening the Brexit deal to negotiations, "We will not find a new Withdrawal Agreement within 30 days which will be very different from the existing one," Macron stated.

The main boost to the currency, however, came later when German Chancellor Angela Merkel at a news conference in Hague said that they could find a regime that keeps the Good Friday agreement and also ensures the integrity of the EU's single market. "We can also find a backstop solution by October 31," Merkel further added.

In the meantime, the Confederation of British Industry's latest Distributive Trades Survey showed that retail sales volumes and orders both fell at their fastest since December 2008 in the year to August. Commenting on the data, “Sentiment is crumbling among retailers, and unexpectedly weak sales have led to a large overhang of stocks,” said  Anna Leach, CBI Deputy Chief Economist. “It is unsurprising that business confidence has deteriorated sharply, with a potential no-deal Brexit on the horizon. 

US Dollar – US Markets

The dollar faced selling pressure during the early trading hours of the American session after the IHS Markit’s Flash US PMI report showed a contraction in the manufacturing sector’s business activity. However, hawkish comments from Fed officials helped the currency erase some of the daily losses it suffered against its major rivals.

Markit Manufacturing PMI dropped below the 50 marks for the first time in nearly ten years and the Services PMI fell to 50.9 from 53 in July and showed expansion in the service sector at a much slower pace when compared to the previous month. Commenting on the data, "August’s survey data provides a clear signal that economic growth has continued to soften in the third quarter," said Tim Moore, Economics Associate Director at the IHS Markit. "The PMIs for manufacturing and services remain much weaker than at the beginning of 2019 and collectively point to annualized GDP growth of around 1.5%." 

While speaking to Bloomberg TV earlier today, Kansas City Fed President Esther George said that she would prefer to leave the policy rate unchanged. "It's not the time for accommodation, the labour market remains strong," George explained. "Businesses are still reporting issues finding workers, we are seeing higher wages." Later, Philly Fed President Harker told CNBC that they were “roughly where neutral is” and argued that there was no need for further stimulus at the moment. "No need for another rate cut, the central bank should stay here for a while," Harker said.

Euro – European Markets

The mixed macroeconomic data releases from the euro area and contradicting headlines surrounding the possibility of German government putting together a stimulus package to cope with a recession caused wild swings in the shared currency on Thursday.

The data published by the IHS Markit on Thursday showed that the business activity in the manufacturing sectors of both Germany and the eurozone contracted at a slower pace than expected with PMI readings staying below 50 but coming in slightly higher than estimates in August. Additionally, the service sector continued to gather momentum to allow the Composite PMI to improve from July levels. Commenting on the data, “Germany remains a two-speed economy, with the ongoing growth of services just about compensating for the sustained weakness in manufacturing,” said Phil Smith, Principal Economist at IHS Markit. “Although improving slightly, the survey’s output data haven’t changed enough to dispel the threat of another slight contraction in GDP in the third quarter, especially given the deterioration in the forward-looking indicators.” Later in the day, the European Commission’s latest Consumer and Business Sentiment Survey showed that the Consumer Confidence Index in dropped to -7.1 in August from -6.6 in July and came in slightly worse than the market expectation of -7.

Although German Finance Minister Olaf Scholz earlier this week said they were practising with an expansive budget policy, German central bank (Bundesbank) today reportedly said that there was no need for a fiscal stimulus by the government right now to weigh on the euro in the second half of the day.

What’s coming up? 

UK: The BBA Mortgage Approvals will be the only data featured in the UK economic docket on Friday. 

US: FOMC members Bullard, Kaplan, Mester, and Harker will be giving TV interviews on the sidelines of the Jackson Hole Symposium. Later in the day, FOMC Chairman Powell will be delivering his prepared remarks at 14 GMT.

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