What’s been happening?

Pound Sterling – UK Markets 

The pound gathered strength against the dollar and the euro during the European trading hours on Wednesday on the back of upbeat macroeconomic data releases from the UK. According to the British Bankers Association (BBA), driven by the remortgaging ahead of the anticipated rate hike by the Bank of England in August, the total amount of new mortgages approved by British banks for house purchases advanced to its highest level since September 2017 at 2.162 billion sterling in June. The monthly report published by the Confederation of British Industry (CBI) revealed that retail sales balance dropped to 20 in July from the nine-month high it recorded at 32 in June. This number, however, surpassed the experts’ estimate of 15. Commenting on the data, the CBI’s Principal Economist, Alpesh Paleja, said that they were seeing some early signs of a moderation in the retail sector following the heatwave-driven upsurge in sales and added that retailers were not anticipating growth in their sales in August.

Meanwhile, in an interview with Channel 5, British Prime Minister Theresa May reassured citizens that they were prepared to secure food supplies and medicines in the event of a hard-Brexit. “I believe we can get a good deal ... but let’s prepare for every eventuality,” May said and provided some extra fuel to the pound.  

US Dollar – US Markets

The U.S. Census Bureau and the Department of Housing and Urban Development announced that sales of new homes decreased by 5.3% in June to a seasonally adjusted annual rate of 631,000 to miss the market expectation of 670,000 by a wide margin. Moreover, May’s reading was revised down to 666,000 from 689,000. Nonetheless, the market showed an insignificant reaction to the data as investors remained on the sidelines while waiting for the outcome of the meeting between European Commission President Jean-Claude Juncker and US President Donald Trump.

“We agreed today, first of all, to work together toward zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods,” Trump told reporters during a joint press conference at the White House and triggered a dollar sell-off. Juncker elaborated further by saying that they agreed to hold off on additional tariffs while negotiations were ongoing. The US Dollar Index, which tracks the greenback against a basket of six major currencies, slumped to a two-week low at 94.14. 

Euro – European Markets

Germany’s Munich-based Ifo Economic Institute reported that the Business Climate Index edged down to 101.7 in July from 101.8 in June to beat the experts’ estimate of 101.5. Furthermore, Ifo’s Current Assessment Index improved to 105.3 from 105.1, and the Expectations Index eased to 98.2 from 98.6 vs. 98.1 expected. Despite the upbeat numbers, Ifo economist Klaus Wohlrabe noted that the uncertainty surrounding Trump administration’s trade policy was weighing on the sentiment in the automotive sector. 

The European Central Bank’s report titled ‘Monetary developments in the euro area: June 2018’ showed that annual growth rate of adjusted loans to households stood at 2.9% in June while adjusted loans to non-financial corporations increased to 4.1% in June from 3.7% in May. The shared currency, however, remained relatively quiet against its rivals ahead of tomorrow’s critical ECB meeting. 

What’s coming up? 

UK: There won’t be any macroeconomic data releases from the UK on Thursday and investors will remain focused on Brexit headlines. 

US: The US economic docket will feature weekly continuing and initial jobless claims, goods trade balance, and durable goods orders data.  

EU: The ECB is going to announce its interest rate decision, which is expected to remain unchanged at 0%. Markets will be looking for Governor Draghi to clarify the conflicting reports regarding the timing of a possible rate hike.