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Brexit didn’t mean brexit

Brexit didn’t mean brexit

GBP The Sterling focus was squarely on political rhetoric from the UK and Europe yesterday. Following Theresa May’s last Prime Ministers questions the pre-planned ministerial resignations were accompanied by a few unexpected resignations as the Johnson administration started it’s first 100 days. Sajid Javid joined the Cabinet as Chancellor raising expectations of a looser fiscal policy. The recently fired Gavin Willamson and Priti Patel were appointed to the cabinet as Education Secretary and Home Secretary respectively.

The Pound gained modest support from expectations of decisive government stance, Sterling flirted with a move over 1.2500 on the Dollar and the Euro dipped to near 1.1225. Ultimately the gains were limited by expectations of a confrontational approach and the risks of a ‘no-deal’ outcome.

EU officials sounded very cautious on new negotiations and there was caution surrounding more instability triggered by another weak government. The European Parliament reiterated that a backstop was needed for the Northern Irish border with markets still sceptical over the ability to secure a clear strategy for leaving the EU at the end of October. The Euro trades around 1.1205, Dollar around 1.2475 at market open.

USD

The US Dollar, as measured by the USD index which tracks the currency against a basket of other major currencies, has continued on a slight upward trajectory into this morning..

Some auspicious headlines from the US-China trade front lent extra legs to the buck overnight, while market consensus keeps pointing to a small interest rate cut by the Federal Reserve (Fed) at its meeting next week. Trade tensions now look somewhat alleviated after US and China decided to restart talks next week. The demand for the greenback, in the meantime, stays underpinned by its safe have appeal, the status of ‘global reserve currency’, solid US fundamentals when compared to its G10 peers and the shift to a more accommodative stance from the rest of the worlds central banks.

On the US docket today sees Trade Balance figures during June which are due seconded by Durable Goods Orders and the usual weekly report on Initial Claims.

EUR

The Euro fell against the Dollar for the fourth straight day yesterday on the prospect of European Central Bank rate cuts. The ECB is widely expected to leave policy rates unchanged today, but begin preparations for cuts in the coming months by removing the tightening bias from its forward guidance.

The market seems to have priced in a 10 basis point rate cut in September and evidently shown from the pullback from the June high of 1.1410 to Wednesday’s low of 1.1127.

The common currency, however, could take a drubbing and drop to 1.10 in the next few days if the ECB sends out a strong dovish signal, setting the stage for multiple rate cuts over the next few months or even cuts rates today.

As of writing, EUR/USD is currently trading at 1.1126. 

 

Data to watch:

12.45 EUR ECB Interest Rate Decision

13:30 EUR ECB Press Conference

13:30 USD Nondefense Capital Goods Orders

 

 

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