China's exports increase, industrial production in Germany goes down. In today's stable currency market, the pound is the exception. The tightening of rhetoric on the negotiations on a trade agreement between the United Kingdom and the European Union clearly harms the British currency.
Monday on the broader market passes in calm moods. And so it will probably stay until the end, as Americans are celebrating a labour day today, and therefore, there is much less investor activity across the pond than usual.
Chinese export power
This morning, data on China's trade exchange were presented, which may give some indication of how demand is developing.
According to China's statistical office, exports in August increased by 9.5% per year, recording the strongest growth pace since March last year. This suggests that global demand is most likely not to disappoint (expected to grow by 7.5%). At the same time, imports fell by 2.1%, which also allowed to keep the exchange surplus close to historical records (about 58.9 billion USD).
In Germany, there is a decrease in production and... declaration by Chancellor Merkel
Weaker data came from Germany, where according to Destatis, industrial production dropped by 10% per year in July, although a somewhat smaller drop was expected - about 7.4%. In monthly terms, there was an increase, but only by 1.2%, which is clearly below the expectations of 4.5% and far below the pace of the previous month (9.3%).
In the morning Bloomberg reported that German Chancellor Angela Merkel is ready to combine the Nord Stream project with Russia's response to the poisoning of Alexei Navalny. Although it may not be an important event for the euro at the moment, it may increase geopolitical uncertainty due to growing other risks.
Johnson prefers leaving without a deal?
As expected, the issue of trade agreement negotiations between the UK and the European Union returns. British Prime Minister Boris Johnson tightened his rhetoric, stating that he would rather abandon the agreement than compromise the foundations on which Brexit was based. He also set a date of October 15th as the deadline for concluding the agreement.
The tactics are somewhat similar to the style of negotiation from a year ago on Brexit itself, so uncertainty can last until the last moment. Negotiation talks will resume this week. However, today, the Union has already announced that it is ready to trade with the United Kingdom under WTO (World Trade Organization) rules if necessary, which would de facto mean "hard" Brexit.
As a response to the return of increased uncertainty surrounding the negotiation of the trade agreement, the pound clearly lost value today. Already around midday, its value fell by about 1% in relation to the dollar, with the strongest fall in just over two weeks. The GBP/USD pair fell to about 1.3150, and a drop below 1.30 today or in the following days may additionally put pressure on the British currency again.
The pound was over 5 PLN, but it is already close 4.95
The dollar is starting to show signs of life, supported by most positive macroeconomic data from the US economy. This is quite clear in comparison with data from the eurozone, where the initially strong growth pace of activity is already beginning to slow down. The exchange rate of the main currency pair (the EUR/USD) remains slightly above 1.18, but may slowly fall as the factors that are slightly more favourable to the dollar increase, at least in the short term.
The zloty started the week steadily. The Polish currency, as well as the Czech koruna and the forint, were affected by last week's depreciation, reversing some of the increases from the end of July. The pound and zloty reacted slightly stronger today, moving away from 5.00. The GBP/PLN exchange rate was approaching 4.95 around midday and given the current state of negotiations on the UK's trade agreement with the EU, we can even expect further drops in the pound in the coming weeks if there is no breakthrough in the talks.