Although the North Korean story is still in progress, spreading fears to the international community and forcing investors to give up high-yield assets and buy less risky ones, the focus during the European trading hours turned back to the economic calendar. Trade and non-manufacturing PMI data were out of the US, while Canada released trade figures prior the BOC’s surprising decision to raise rates. The loonie climbed to a fresh 2-year high versus the greenback, while oil peaked at new tops ahead of the API report expected later today.
During the European session, the dollar continued weakening as rumors were spreading that North Korea was planning to fire an intercontinental ballistic missile probably on September 9 when the regime will celebrate its founding day. Moreover, a top North Korean diplomat warned late on Tuesday that his country will deliver more "gift packages" to the US if it continues threatening the country.
In terms of US data, the Bureau of Economic analysis released trade figures for the month of July. The trade deficit rose moderately by $0.20bn to $43.70bn, coming in better than expectations of $44.60bn.
In other data out of the US, the Institute of Supply Management published the August PMI readings for the non-manufacturing industry. The index increased by 1.4 points to 55.3 but stood below the forecasted 55.4. In contrast, the Markit equivalent dropped by 0.9 points to 56.0 in August, missing expectations of 56.8, while the composite version which summarizes the trends of the manufacturing and non-manufacturing activities decreased by 0.7 points to 55.3. This followed the release of the Markit manufacturing PMI index which ticked up by 0.3 points to 52.8 on Friday.
Dollar/yen partially reversed yesterday’s losses, climbing by 0.21% to a session high of 109.04. Dollar/swissie was up by 0.16% to $0.9564, while the safe-haven gold slipped by 0.06% to $1,337.70 an ounce.
The euro was building an upleg against the greenback, edging up to $1.1937. Note that ECB policymakers are meeting tomorrow, with markets anticipating the central bank to stick to its current monetary policy strategy, potentially giving new hints on the timing it will start reducing its asset holdings.
Sterling extended its gains versus the greenback reaching a one-month high of $1.3053 a day before the parliament brings the government’s EU repeal bill on the table. With uncertainties around Brexit talks remaining on the background, the UK’s Finance minister Philip Hammond warned policymakers on Monday to avoid any delay on legislation after the opposition party was said to be preparing several changes to the bill.
The aussie stretched its downtrend after disappointing GDP growth data, being 0.31% down on the day at $0.7971, while the kiwi was down by 0.35% at $0.7209.
The Canadian dollar surged by more than 1% today after the Bank of Canada shocked markets by raising interest rates. The Bank of Canada announced it is increasing its overnight rate by a quarter of a percentage points to 1%. The decision was unexpected as a majority of analysts were anticipating the next move to come in October. But following much stronger-than-expected GDP growth in the second quarter, the BoC opted to act at its September meeting. However, regarding the outlook for further rate hikes, the Bank said future decisions would be data dependent and expressed some concerns about geopolitical risks, a stronger loonie and high household debt. Nevertheless, the loonie jumped to a fresh 2-year high after the decision, with dollar/loonie hitting a low of 1.2134 before settling around 1.2235.
Before the BOC announces its decision to raise rates, trade data failed to provide support to the currency. Canadian exports dropped by C$2.29bn to C$44.14bn in July mainly due to a stronger exchange rate according to Statistics Canada (loonie gained 3.6 US cents in July), whilst imports declined by C$3.02bn to C$47.18. The trade deficit narrowed by C$0.72bn to C$3.04bn, surprising analysts who projected it to shrink by C$0.06bn to C$3.10bn.
Looking at oil prices, those were one of the best performers during the European session. WTI crude surged by 1.19% to a near one-month high of $49.21 per barrel, while Brent jumped by 1.35% to a more than three-month high of $54.12. The increase in prices emerged as a significant proportion of the total US refining capacity was still shut after the catastrophic storm Harvey knocked out of business major refineries in Texas last week. Moreover, hurricane Irma which is currently located in the Caribbean and is expected to enter Florida, might cause additional fuel shortage. According to Reuters, 250k barrels of daily refining capacity are located in the Dominican Republic and Cuba. Though, the American Petroleum Institute report published later today and the Energy Information Administration report released tomorrow will give an indication of the damage caused by Harvey. It should be mention that the API report is expected to show that crude oil stock reduced by 5.78mn barrels last week.
