The decline in global risk appetite undermined the Pound in light of the UK’s dependance on international trade. The lack of a breakthrough on Brexit negotiations and preparations for ‘no-deal’ continue to weigh on market confidence and Sterling sentiment. The Pound gained from several central bank interest rate cuts around the globe and the expectation of further monetary easing which would boost UK bond yields in relative terms. However, the Bank of England is still expected to adopt a dovish stance. The Euro pushed down to the 1.0835 area and Sterling failed to make headway on a fragile Dollar, settling just below 1.2150.
Overnight, RICS housing data recorded a further decline and revealed further evidence of caution given Brexit uncertainty. Risk conditions are modestly improved this morning and the Pound is slightly stronger. The Euro is still below 1.0870, and Dollar circa 1.2160 ahead of the next major UK data: UK GDP on Friday morning.
President Trump again attacked the Federal Reserve (Fed) with comments that our problem is the central bank and not China. Chicago Fed President Evans stated that on the basis of inflation alone the July cut in interest rates was justified and that more accommodation was justified, especially given economic headwinds.
Markets remained convinced that the Federal Reserve would cut interest rates again at the September policy meeting with yield spreads undermining the US currency. The Euro advanced to 1.1240 as the dollar lost traction, but the US currency was able to regain some ground as equity markets recovered. The Euro against the Dollar then retreated to around 1.1200 before a slight advance this morning.
German industrial production data, as mentioned yesterday, came in below consensus forecasts with a 1.5% decline for June compared with expectations of a 0.5% decline, maintaining concerns over the bleak trade and economic growth outlook. German bonds opened higher and continued to gain traction during the European session with the 10-year yield declining to a fresh record low of -0.60%.
Nothing significant data wise in Euroland, as Spanish Industrial Production figures are released this morning seconded by the ECB’s Economic Bulletin. As writing the EUR/USD is trading at 1.1265.
Data to watch
09.00 - ECB Economic Bulletin
13.30 - USD Unemployment Claims
Posted in Daily Market News on Aug 8 2019