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Business as usual

Business as usual

GBP
The Pound managed to leave behind the downside pressure coming from the Manchester blasts and apparent effervescence following discussions between the UK and EU over the ‘divorce bill’, which according to EU officials should be around €100 billion.

In light of the terror attacks, Theresa May announced that the terror threat level has been raised from “severe” to “critical”, suggesting another attack could be “imminent”. This, interestingly, hasn’t had much of an effect on Sterling. In fact, strangely, almost the opposite has happened and hence Sterling has jumped back towards the 1.3000 handle against the Dollar and back up above the 1.1600 level against the Euro.

There is no tier one data scheduled in the UK today.

USD

The US Dollar consolidated overnight gains as the market now looks forward to the Federal Open Market Committee (FOMC) meeting minutes to reaffirm June Fed rate-hike expectations. The Greenback bounced off monthly lows despite mixed US economic data, which continued to fuel concerns that slowing economic growth might discourage the Fed from hiking rates. In the latest US data, the IHS Markit flash services PMI rose to a four-month high but got offset by manufacturing PMI, which fell to its lowest level in eight months, and new home sales data that fell short of expectations.

Today’s US economic docket features the release of existing home sales data, but the market focus would remain glued to the release of May FOMC meeting minutes. This is likely to act as a key driver of the markets’ near-term momentum.

EUR

The recent Euro rally found justification in the strong European PMIs out yesterday, which essentially means that we have yet to see firm signs of the European business cycle peaking.

For now, the strong Euro momentum looks set to stick around despite falling slightly against the Pound overnight. It is stressed that the Eurozone is unlikely to weather the global slowdown altogether and that PMIs may be peaking at present. This suggests that Euro bulls could eventually see a sanity check, but this may take another few months.

Looking ahead, all eyes remain on European Central Bank (ECB) chair Draghi’s speech due later today for fresh hints on tapering. However, Draghi’s failure to provide any cues on exiting the ultra-loose monetary policy program will bring monetary policy divergence between the Fed and ECB to the fore ahead of the FOMC minutes.

Data to Watch:
7:00am EUR GER Gfk Consumer Confidence Survey (Jun).
8:15am EUR CHF Industrial Production (YoY) (QoQ) (Q1).
10:00am EUR EU Financial Stability Review.
1:45pm EUR ECB President Draghi’s Speech.
2:00pm USD Housing Price Index (MoM) (Mar).
3:00pm CAD BOC Rate Statement, BOC Interest Rate Decision.
7:00pm USD FOMC Minutes.

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