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Room for optimism

Investors lose faith in Yen

Japan's yen was Wednesday's worst performer, falling by an average of just over 1% against the other major currencies. Its decline had nothing to do with Japan: it was all the result of calming - or at least less alarming - news from around the world.

In Hong Kong, chief executive Carrie Lam withdrew the extradition bill which investors saw as a step towards reconciliation. In Beijing, a spokesperson said that Chinese trade negotiators will resume their discussions with Washington in October. Even though investors are not convinced that there will be a concrete and positive outcome, the prospect of talks is more encouraging than further tariff escalation.

In London, the prime minister failed to block a cross-bench effort to avert a no-deal Brexit on 31 October. The bill will go to the House of Lords today and is on track to receive royal assent ahead of Parliament's shutdown. Whilst it does not prevent a no-deal Brexit under all circumstances, it was an expression of serious intent by the House. Parliament also defeated Johnson's bid to call a general election but, in time, one looks increasingly inevitable.

Optimism from Carney

Bank of England governor Mark Carney made his quarterly speech to Parliament's Treasury Committee to discuss the bank's Inflation Report. His testimony was less pessimistic than at previous visits.

The governor told the committee that "the impact of a no-deal Brexit would be less severe than first thought" as a result of preparations for a disorderly departure. He also said there were almost no circumstances in which the bank would intervene to affect sterling's exchange rate. Dr Carney's words were rather overshadowed by the drama in the House of Commons but they still contributed to a successful day for the pound. It strengthened by an average of 0.7%, adding one yen, three quarters of a euro cent and more than one and a third US cents.  

Dr Carney's successor at the Bank of Canada was also up yesterday afternoon, though only in the form of a written statement to say that he was keeping the benchmark, interest rate at 1.75%. The neutral tone of that statement sent the Loonie higher against the US dollar, though it is half a cent lower on the day against sterling.

Data overload

There are dozens of ecostats on the programme for today and tomorrow. The most important will be ISM's services sector purchasing managers' index in the States, Euroland gross domestic product and US and Canadian employment.

Switzerland kicked off this morning with quarterly growth of 0.3% in Q2. German factory orders showed a miserable 5.6% annual decline. Sweden's Riksbank will probably keep its benchmark unchanged at -0.25%. America's ISM services PMI is pencilled in for a quarter-point improvement to 54.0.

Euro zone GDP data on Friday morning are expected to confirm a 0.2% expansion in Q2. Analysts predict a 158k rise in US nonfarm payrolls and 15k new jobs in Canada.

GBP: Leads after Carney testimony

GBP: Leads after Carney testimony

JPY: Safe-haven unwanted

JPY: Safe-haven unwanted

USD: Trade thaw

USD: Trade thaw

CAD: Rate cut fears recede

CAD: Rate cut fears recede

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