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Fed members dismiss Trump.

By Hamish Muress

It was a tale of two halves yesterday for the pound as the morning’s session saw it appreciate off the back of comments from Brexit Secretary Dominic Raab, before the open of the American session put pressure on sterling once again. Raab, the successor to David Davis, contradicted his colleague and Trade Secretary Liam Fox yesterday by saying that a good deal for the UK is still by far the most likely outcome rather than a ‘no deal’.

The government also released a series of technical or advisory notes yesterday a move which was meant to placate concerns but was met with lukewarm reception. The reminder of Brexit uncertainty is a surefire way to cause the pound to weaken.

We mentioned earlier in the week that the Federal Reserve would be unperturbed by the recent comments from President Donald Trump and look to double down on their efforts to raise interest rates. Comments yesterday from Fed member Robert Kaplan (centrist) seemed to reaffirm this position as he stressed the independence of the central bank during an interview at the annual central bank summer party (Jackson Hole). The marvelous Esther George (hawk) was perhaps even more dismissive of the President with the Fed member showing her experience by saying that criticisms of higher interest rates “are not new to this administration”. These comments halted the loses that we’ve seen for the USD this week (ever since Trump’s criticism) and we go into the long weekend with the USD back on the front foot.

Meanwhile elsewhere the trade negotiations between China and the US have failed to produce any positive news this week, whilst on the other hand the ongoing negotiating around NAFTA could bring Canada back to the fore.

Jackson Hole Guest list:

Fed Chair – Jerome Powell

BoC Governor - Stephen Poloz

BoE Governor – Mark Carney (maybe)

ECB Chair – Mario Draghi (maybe)

BoJ Governor – Huruhiko Kuroda (busy)

The main news for the Euro came from German Bundesbank President and ECB member Jens Weidman yesterday. Weidman, who has long be known as an interest rate hawk, once again reiterated his desire to exit the ultra loose monetary policy that the ECB is currently employing and not delay the return to neutral rates. Weidman has also long been seen as the natural successor to Mario Draghi and the forerunner however there are now reports that Angela Merkel pushing for a German to have the top job at the EU Commission rather than the ECB (one country can’t hold both roles).

Day 5. The saga continues. Although maybe there is now an end in sight. All week we have been talking about the battle between (ex) PM Malcolm Turnbull and ex home affairs minister Peter Dutton but when it came to the latest leadership vote Scott Morrison triumphed. Domestic politics doesn’t normally rattle the Australian dollar, its main drivers being commodity prices, outlook in China and trade talks, however this week the Aussie has come under pressure as a result of all of this political uncertainty. With this ‘Game of Thrones’ over (Morrison unsurpsingly has announced there will not be a general election) the Aussie has bounced back and once again return to its normal fundamentals

Bank of Canada Governor Stephen Poloz is a confirmed attendee at today’s gathering at Jackson Hole and he is also set to speak as well. The Canadian dollar has lost around 1% against the pound the last week or so and heads into the long week on the back foot.

New Zealand trade balance figures surprised many by coming out much better than expected. Many forecasters had anticipated exports to shrink as a result of the ongoing trade wars but this was not the case. Indeed it may seem that a lot of exporters or importers from elsewhere have been front loading their orders before the tariffs take full effect. This is not uncommon and something we saw recently with US GDP coming out much greater than expected a few weeks ago. The net result was no change for the New Zealand dollar.