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Fed rate cut expected

Time out

Two Brexit-related comments by the Prime Minister yesterday gave investors pause for thought. In one, he suggested that Britain could remain in the single market for two years after it leaves the EU. In the other, he said it would be the fault of Brussels if the UK were to take the cliff-edge route.

The second observation was unhelpful to sterling; an apparent escalation of the rhetoric in preparation for passing the blame. The first was surprising and at least a little positive. Leaving without a deal and remaining in the single market are, on the face of it, mutually incompatible. Yet if Mr Johnson can still contemplate such an outcome he cannot be fully sold on a no-deal Brexit.

Partly as a result of these considerations, but mostly in reaction to Monday's sharp sell-off, sterling managed to regain its balance yesterday. In fact, it was the joint top performer among the major currencies, adding an average of 0.4%. The pound was unchanged against the Canadian dollar and a millimetre ahead of the euro.

Trade talks trouble

As Chinese and US trade negotiators prepared for new discussions in Shanghai, the presidential thumbs were flying. In an apparent - and eventually successful - effort to frustrate the talks, Trump claimed that "China is doing very badly" and cannot be trusted. The dollar was unaffected and is on average unchanged.

US data added little to the debate. Personal incomes narrowly outpaced expenditures in June and consumer confidence rebounded by 11 points in July to 135.7.

The ecostats from Europe were mostly unimpressive. Sweden's economy shrank by 0.1% in the second quarter, sending the krona to the back of the field and Norway's krone did almost as badly on news that retail sales fell 0.4% in June. German consumer confidence was a touch softer at 9.7 according to GfK, while the EC's pan-Euroland confidence measures were all lower in July.

Big support bill

Today's economic statistics will provide a long build-up to the major event; The Federal Open Market Committee's monetary policy announcement and the chairman's press conference. The Fed has done its best to guide investors' expectations towards a 25-basis-point reduction in the Funds rate.

GfK kicked things off this morning with an improvement in UK consumer confidence from -13 to -11. The NZ dollar came under pressure following publication of ANZ's business Outlook, which bore the simple title "Grim". The Kiwi is a cent and a half lower, depressed also by BNZ's belief that there will be two more rate cuts this year. Australian inflation data slightly exceeded forecast in the second quarter. German retail sales jumped 3.5% in June and UK house prices were up by 0.3% on the month and the year in July.  

The list for the remainder of the day includes Euro zone inflation and second quarter GDP, Canadian input and output prices and the Chicago purchasing managers' index. The Fed's policy statement comes at 19:00h and the chairman's press conference half an hour later.

GBP: Back on its feet

GBP: Back on its feet

USD: Trade talks totter

USD: Trade talks totter

SEK: Economy shrinks in Q2

SEK: Economy shrinks in Q2

EUR: Fading confidence

EUR: Fading confidence

NZD: Grim

NZD: Grim

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