European stock markets edge higher on Wednesday, but show a more tepid growth than the Asian stocks earlier in the day. A cautious risk-on tone prevails in the global markets as the escalation of a trade war between the US and China was somehow “softer” than investors had feared. The recent Trump’s comments also support positive sentiment as the US President highlighted that his country may make a deal with China at some point and that the US is always open to talks. As such, Britain’s FTSE 100 adds just 0.18 per cent to 7,313, France’s CAC 40 gains 0.26 per cent to 5,377, while German DAX 30 rises by 0.17 per cent as well, to 12,178. US stock index futures ser for a marginally upbeat open amid the positive sentiment globally.
The dollar is back under pressure after a short-term reversal yesterday. The buck is losing ground amid lack of safe-haven demand as the world shares keep grinding higher despite the trade war escalation. The pound jumped to two-month highs above the 1.32 threshold due to a number of positive factors. The UK headline inflation rose unexpectedly to its highest levels in six months, which boosted the expectations of a rate hike by the Bank of England. Apart from that, sterling continues to receive bullish signals from Brexit developments. In particular, chief EU negotiator Michel Barnier said that Brussels was ready to improve its offer on the Irish border proposal. In turn, ahead of Salzburg Brexit summit, Theresa May said EU proposal is still “totally unacceptable”.
So, against this backdrop, the potential for further rise in the pound is limited unless the summit brings the real progress. By the way, the pair has already retreated after the recent spike and trades below the 1.32 level again. The price has accelerated the decline since then and got to the negative zone around 1.3130 after the UK Treasury minister said there could be another referendum if Chequers is rejected by parliament.
EURUSD is off the daily highs as well. After a jump above 1.17, the pair staged a partial correction but remains in the positive territory due to the lingering dollar weakness. The short-term bullish impetus for the euro came from fresh euro zone economic data. According to the official report, the construction output rose 0.3% in July versus -0.1% expected. As for the US data, housing starts growth has accelerated in August to 1282K versus 1238K expected, which gave some lift to the dollar. As for the technical picture, the pair is yet to confirm its bullish bias by a daily close above 1.17. Otherwise, the downside risks may reemerge in the short term.
Brent crude failed to get back above the $79 barrier and seems to have met some offers on the way to this threshold. As a result, the market switched to the profit-taking mode, with the price has retreated to the $78 area. The general tone in commodities remains neutral-to-positive as the market digests the recent verbal interventions by Saudi Arabia that fuelled a rally above $79 on Tuesday. The latest correction is partly due to the dollar price action which has improved somewhat over the last couple of hours. In the short term, Brent still vulnerable to further losses, but the potential pressure will likely be limited as the risk-on tone on the global markets supports commodities as well.
Nathan Lambert, Head of Global FX Analytical Department