GBP

Last week the Pound fell by almost 4% against the euro due to the release of the Internal Market Bill which in the governments’ own words would breach international law. Boris Johnson said the bill is intended only as “a legal safety net designed to protect our country against extreme or irrational interpretations”. But the EU see it in a different light and has drawn threats of legal action, trade war and maybe even the end of the UK-EU negotiations. This led to the Pound having its worst week since March and this downside pressure is likely to continue.

The focus this week will remain on the Internal Market Bill as it is debated in Parliament on Monday where it is expected to be eventually passed. The headlines which will accompany this will likely drive the Pound lower. On the data front it is a busy week for the Pound with the inflation report on Monday, unemployment on Tuesday, CPI on Wednesday, and the Bank of England interest rate decision on Thursday. The Bank of England is expected to remain on hold and focus will move to the November meeting which will include either a deal or no deal scenario.

USD

The Dollar had a quiet week with the dollar index slightly recovering from 91.80 to now being in the mid 93’s. The only major data release for the Dollar came on Friday in the form of CPI both month on month and year on year. Monthly was reported at 0.4% versus a prediction of 0.2% and yearly was reported at 1.7% only slightly beating the prediction of 1.6%. Both these prints were close enough to the forecast not to move the market.

The key event this week for the Dollar will be the Federal Reserve meeting taking place on Wednesday where there will likely be some forward guidance for the new average inflation target. We should also get new Dot Plots which should see an upgrade in the 2020 median GDP forecast, previously at -6.5%. On a data front, the important releases come on Wednesday and Friday with August retail sales and consumer confidence, respectively. Consumer sentiment is likely to stay near the lows and retail sales are likely to fall short.

EUR

The expected comments about an overpriced euro from the ECB never materialized so the single currencies manged to get through the week unscathed. Against the dollar, we saw a two-week high hit on Thursday of 1.1916 before closing out the week in the low 1.18’s. As mentioned previously the euro had the best week since March against the pound finishing the 4% up and briefly touching 0.9297.

This week Brexit will be the key driver for the euro and not just against the pound as a no-deal will cause downside to the euro especially against the dollar. On a data front we will see the release of Eurozone July industrial production and the latest Herman ZEW figures. The latter being release on Wednesday and is an economic sentiment survey reflecting the difference between the share of investors that are optimistic and the share of analysts that are pessimistic.

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