A mixed session for the US Dollar at the end of last week as fresh data from the US complexes the outlook of the currency as stronger GDP figures offset the lower Advance Goods levels on Thursday. The Dollar had been under pressure since mid-week when the release of the FOMC minutes revealed that several policymakers were concerned about the pace of inflation in the States. This should have cast doubts over the likelihood of a rate hike next month; however Fed Futures continue to indicate certainty about the Fed pulling the trigger again.
Sterling is weakening. EUR-GBP temporarily traded around 0.8750 and GBP-USD below 1.2800. The loss is probably due to Labour’s recent surge in the polls. At the moment, Theresa May’s Tories are considerably less sure of a clear electoral victory than when the elections were announced.
The political situation in Brazil remains fragile. President Temer’s refusal to resign only delays progress in fiscal reforms and risks a slowdown in the economy. Brazilian assets do not reflect sufficient risk premium, even after the sharp correction, leaving room for further downside potential if the situation deteriorates. The BCB is likely to cut its policy rate by 100bp this week, but a risk of a smaller cut cannot be ignored.
German Chancellor Merkel on Sunday signalled that Europe can no longer count on the US as a reliable partner, following two days of international summits with US President Trump last week. "The times in which we can fully count on others are somewhat over, as I have experienced in the past few days," Merkel said in Munich. "We Europeans must really take our destiny into our own hands."