The Pound held firm early on but after attempts to break above the 1.2670 area against the Dollar failed further selling was triggered and gains were surrendered. Bank of England Governor Andrew Bailey stated that the BoE is witnessing the economy recover somewhat, but there is still great concern for jobs. Markets fretted over the huge amount of Brexit preparation needed over the next few months with very little time left. There were important concerns that UK trade would face notable disruption from the end of this year even if a trade deal was put in place with the EU which hampered underlying sentiment.
As risk appetite dipped the Pound slumped back to 1.2550 on the Dollar and the Euro pushed back from 1.1111 to 1.1068. British Retail Consortium data recorded an annual increase in like-for-like retail sales of 10.9%, better than the 7.9% previously. GDP grew by 1.8% in May following the April slump of 20.4%; well below market forecasts of 5.0% dashing hopes of a “V” shaped recovery. Manufacturing production recovered more strongly, but the Pound shrugged off the data as it traded just below 1.2550 against the Dollar and the Euro held around 1.1060.
The Dollar briefly regained some ground ahead of the New York Open, but then lost ground once again as the strength in global equities continued to undermine support for the US currency. Commodity currencies made further gains initially which stifled support for the US currency.
There were fresh concerns over the US economic outlook with further evidence that overall gasoline demand was weakening again from the recovery peak seen in June. The budget deficit also increased to a record $864bn for June, reinforcing the substantial fiscal deterioration amid a slide in receipts.
There were no significant Euro-zone data releases yesterday with political developments and global equity market trends crucial for overall Dollar direction. There was an element of Euro caution ahead of the EU Summit which begins on Friday with the recovery fund expected to be the main focal point of discussions.
In comments made on Monday, German Chancellor Merkel stated that Italy and Germany were in agreement on the basic structure of the recovery fund, but she was unable to say whether an agreement would be reached at the summit. Markets will continue to monitor rhetoric closely over the next few days.
As of writing, the Euro trades around the 1.1335 against the Dollar.
Data to watch
06:00 - GBP - GDP
12:30 - USD - CPI
12:30 - USD - Cpre PPI
Posted in Daily Market News on Jul 14 2020