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Boris going home

Boris going home

GBP 
Sterling which had dipped lower yesterday after an early advance yesterday morning has moved back higher overnight.

The prime minister, Theresa May, reshuffled her cabinet yesterday after the resignations of key government ministers over her approach to Brexit. The GBP/USD pair had a mixed day and was influenced by the latest UK political developments. The reaction to David Davis’ resignation as Brexit Secretary was rather muted, with weekend news over a Cabinet agreement on a softer Brexit underpinning the British Pound. The pound rose to an intraday high level of 1.3363 but then retreated sharply in reaction to Boris Johnson’s resignation as Foreign Minister.

Johnson’s exit was seen as essential to a leadership challenge for the UK PM Theresa May and prompted some aggressive selling around the British Pound. The situation, however, stabilized after Conservative Party Chairman Brandon Lewis said that he is not expecting a confidence vote, helping the Sterling recover from session lows against both the Euro and the Dollar.

The UK docket has the first-ever monthly GDP release today, alongside the trade balance and industrial production, all of which was published today at 9:30am. The United Kingdom GDP is expected to arrive at 0.3% in May. Meanwhile, the manufacturing production, which makes up around 80% of total industrial production, is expected to show m/m growth of 0.9% in May, up from a contraction of 1.4% recorded in April.

USD

The Dollar took full advantage of the selling of Sterling and performed its traditional safe-haven role, mopping up a significant amount of flow.

The Greenback had started the day focusing on trade issues unsure of further interest rate hikes but ended the day on a firm footing after risk aversion took hold. There were no major US data releases, although there was a stronger than expected reading for consumer credit which boosted confidence surrounding the spending outlook.

In the US data space, JOLTs Job Openings for the month of May are due next followed by the weekly report on US crude oil supplies by the American Petroleum Institute (API).

EUR

The Euro was firm yesterday afternoon as the expectations for a soft Brexit were strengthened by the resignation of David Davis and Boris Johnson. The single economic area which enjoys significant income from trade with the UK will take a positive stance from yesterday’s results.

European Central Bank (ECB) Council member Nowotny stated that inflation was moving in the right direction and that the bank’s targets had been achieved to a large extent while the task was to make sure that progress was maintained. He also commented that trade war risks are less dramatic than at first sight, but any currency war could have a much more serious impact. ECB President Draghi reiterated that confidence in the inflation path is rising while overall risks to the growth outlook were balanced.

Interest rates were set to remain at present levels through the Summer of 2019 and in any case for as long as necessary to ensure inflation goals are met. The rhetoric overall was in line with the ECB policy meeting, but the lack of any more positive rhetoric curbed further potential Euro buying and it edged below 1.1750 from 1.1790 highs as the dollar gradually regained ground.

On the data front, the German ZEW data will be released this morning being the sole event on the EU docket.

Data to watch

9:30am GBP Manufacturing Production (YoY) (May)
9:30am GBP Manufacturing Production (MoM) (May)
9:30am GBP Industrial Production (MoM) (May)
9:30am GBP Gross Domestic Product (MoM) (May)
10:00am EUR ZEW Survey – Economic Sentiment (Jul)
10:00am EUR ZEW Survey – Current Situation (Jul)

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