Boris – ‘Beginning of a new golden age’
GBPSterling suffered another day under the weight of political concerns as EU officials repudiated Boris Johnson’s Brexit approach and rhetoric. EU Officials reiterated that the Withdrawal Agreement was not open to renegotiation and the Irish Foreign Minister also criticised Boris’ approach. Sterling confidence remained low with a slide below 1.2400 on the Dollar and the Euro pushed to the 1.1135 area despite wider Euro vulnerability.
Futures market data showed a further small increase in Sterling shorts (bets against the Pound) increasing the chances of a Sterling bounceback if there is a change in sentiment. Michael Gove stated that the government is now working on the assumption that there will be ‘no-deal’ with the EU, reinforcing market fears. Sterling remains under pressure with 28-month lows around 1.2360 against the Dollar and the Euro is re-testing the 1.1111 area.
According to the first estimate, US GDP increased at an annualised rate of 2.1% for the second quarter compared with 3.1% previously and above consensus estimates of 1.8%. There was a strong rebound in consumer spending to 4.3% from a revised 1.1% as well as sharp declines in investment and net trade while government spending increased strongly.
The Markets were still pricing in just over an 80% chance that the Federal Reserve (Fed) would cut rates at Wednesday’s policy meeting, especially given weak investment data, but speculation over a 0.50% cut diminished further and expectations of further aggressive easing later in 2019 were also scaled back which underpinned the US currency.
White House Economic adviser Kudlow stated that the Administration had ruled out intervention to weaken the US dollar and it pushed to 2-month highs with the Euro around 1.1125. Over the weekend, President Trump contradicted Kudlow with comments that steps to weaken the US currency had not been ruled out.
The Euro against the Dollar is currently trading at the 1.1120, consolidating last week’s decline as markets remain unnerved ahead of the key FOMC, Eurozone flash GDP and US payrolls data due out later this week.
The market has managed to hold above the 1.11 handle, but the bias still remains tilted to the downside amid US-Eurozone macroeconomic divergence. The recent streak of downbeat Euro area manufacturing PMI reports boosted the risks of a recession, as the focus shifts towards the Eurozone Preliminary Flash GDP for Q2 due for release this Wednesday.
The EU docket remains data empty today so the US regional Manufacturing Business Index will be eyed for some fresh trading impetus.