Trump Criticizes Fed Hikes, Brexit Talks in Limelight
What’s been happening?
Pound Sterling – UK Markets
Ahead of the critical Brexit negotiation meeting between the UK Brexit Secretary Raab and the EU’s chief negotiator Michel Barnier, the European Commissioner for Economic and Financial Affairs, Pierre Moscovici, said that ‘in theory’ Brexit vote could be reversed. “The probability of Brexit is nevertheless very strong because there has been a vote of the people, a referendum...” Moscovici told France Inter Radio. According to Reuters, when asked if there would definitely be a deal between Britain and the EU, Moscovici responded: “Not necessarily.”
Meanwhile, Jacob Rees-Mogg, Chair of the European Research Group, Sunday Times that British PM Theresa May could have a difficult time getting enough support from the Parliament to get her Brexit deal approved. “If she sticks with Chequers, she will find she has a block of votes against her in the House of Commons,” Rees-Mogg said. “Of course the Eurosceptics in parliament are not in a majority on all issues, but we will inevitably be in a majority on some of them and that will make the legislation extraordinarily difficult if it is based on Chequers.”
US Dollar – US Markets
The dollar weakened against major currencies on Monday, and the US Dollar Index fell to its lowest level in ten days below 96 after US President Trump reiterated his displeasure with the FOMC’s monetary policy. In an exclusive interview with Reuters, Trump said he disagreed with the Fed’s decision to raise interest rates and added that he was “not thrilled” with Chairman Powell for doing so. Trump argued that China and Europe were manipulating their respective currencies and stated that he had “no time frame” for ending the trade dispute with China. Regarding the political crisis with Turkey, Trump repeated that “there will be no concessions” over detained American pastor Brunson.
Speaking to reporters in Kingsport, Tennessee, Raphael Bostic, the president of the Federal Reserve Bank of Atlanta, said that the economy no longer needed the stimulus it required before, but the Fed was concerned about the flattening of the yield curve. Commenting on the Trump administration’s trade policy, Bostic explained that it constituted downside risks to the economic performance.
Euro – European Markets
The Statistisches Bundesamt Deutschland announced that the Producer Price Index in Germany ticked down to 0.2% on a monthly basis in July from 0.3% in June and stayed unchanged at 3% on a yearly basis. On the other hand, the Eurostat reported that the construction output in the eurozone rose 2.6% annually in June to surpass the experts’ estimate of 1.6%.
Meanwhile, Italy's Cabinet Secretary Giancarlo Giorgetti said that the European Central Bank should extend the QE program in order to protect Italy from financial speculators and stated that Italy might not be able to reach the EU’s 3% GDP-to-debt threshold in 2019, which would make them ineligible for receiving funds for infrastructure maintenance and construction programme. Despite these developments, the euro rose to its best level against the buck since August 10 amid the broad-based USD weakness while staying virtually unchanged vs. the pound.
What’s coming up?
UK: Brexit negotiations will start on Tuesday when UK Brexit Secretary Raab meets the EU's Barnier in the afternoon. Earlier in the day, the Confederation of British Industry will publish the findings of the Industrial Trends Survey.
US: The next significant catalyst for the dollar will be the FOMC’s August meeting minutes that is scheduled to be released on Wednesday.
EU: An empty European economic docket will keep investors focused on the developments in Italy and Turkey.