The UK’s government borrowing widened to £7.2bn in June, more than double the £3.4bn in June 2018 but the higher deficit was due to higher spending rather than a slide in revenue. The Pound was unable to regain much ground despite further positive Brexit rhetoric from the EU and dipped on news that Iran had seized a UK-flagged tanker in the Straits of Hormuz. Sterling dipped to near 1.2500 on the Dollar and the Euro found support near 1.1173.
Futures market data recorded another increase in non-commercial short Sterling positions (bets against the Pound) to 9 month highs which should offer some protection against further selling and could trigger a short squeeze if there is a shift in sentiment. Current Chancellor Philip Hammond confirmed his intention to resign if Boris Johnson wins the Conservative Party leadership election. Sterling opens around 1.2500 on the Dollar and 1.1145 on the Euro this morning.
On Friday, the University of Michigan consumer confidence index increased slightly to 98.4 from 98.2 for July, but was below forecasts with a small decline in current conditions offset by a small improvement in expectations.
Federal Reserve policy remained a key market influence with a renewed dip in expectation that there would be a 0.50% rate cut at the July meeting, especially after the New York Fed downplayed comments from Williams over the potential for aggressive cuts. The chances of a 0.50% cut dipped to around 20% with a 0.25% effectively cut priced in.
The dollar regained some further ground with the Euro settling around 1.1220 after finding support near 1.1200.
For the most part over the last two weeks of trading, the Euro against the Dollar has been bouncing around 1.1200 and 1.1280 with price now hovering around 1.1218 to start the week.
As we navigate through price action this week, keep in mind that everything will tie back to expectations ahead of the ECB meeting decision on 25 July. To a larger extent, markets are expecting the central bank to tweak their forward guidance to reaffirm stimulus in September but there is a slim chance for the central bank to even act as soon as this week.
On Wednesday, we'll have key data from the euro area as we'll get July preliminary PMI survey data for France, Germany and the overall Eurozone.
Posted in Daily Market News on Jul 22 2019