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Cable looks unsure of 1.3000 floor

Cable looks unsure of 1.3000 floor

GBP
Sterling suffered after further comment from Bank of England (BoE) Governor Carney; who stated chances of a Brexit without a deal were uncomfortably high; with only 11 weeks until a deal should be complete.

 

UK Services PMIs for July dropped to a 3-month low of 53.5 and employment growth was also weaker. Sterling weathered the disappointing data with support below 1.3000 against the Dollar, although the gains first seen quickly met selling interest and the UK currency settled lower, currently trading at 1.2970, down to is lowest level since September 2017.

 

UK Trade Secretary Liam Fox estimated the risk failing to make a Brexit deal at above 50%, although there were also reports that the EU could show some flexibility on the Irish border issue.

 

After the Bank of England hiked the Bank rate, sounding relatively optimistic on the UK economic outlook, the UK data on second-quarter GDP and manufacturing output, seen later this week, are unlikely to alter the negative trend for Sterling.

 

USD

 

US nonfarm payrolls gained 157,000 in July with service-sector jobs particularly disappointing. The headline figure was well below forecasts of 185,000, but the June data was revised upward. Headline unemployment declined to 3.9% from 4.0%, in line with consensus forecasts, and the overall number of employed people rose sharply. Average hourly earnings increased 0.3% on the month, a year-on-year increase of 2.7%.

 

The US trade deficit widened to $46.3bn, a 7.4% rise for June, as exports declined maintaining the threat of more aggressive protectionist trade rhetoric from the US Administration. Overall trade concerns persisted after China proposed new tariffs on $60bn worth of US goods.

 

The market reaction was muted and futures markets continue to price the chances of a September interest rate increase above 90%. The Dollar dipped after the data, before regaining ground on bond yield based flows. The Euro and Chinese yuan briefly gained ground on the Dollar before surrendering.

 

Trading volumes look subdued this morning, quite common for the Monday following US employment releases. The Euro continued to drift lower towards the 1.1550 level as the US Dollar index remains strong amid robust investor demand.

 

EUR

 

PMI data was largely underwhelming for July, with a final reading of 54.2. The German index hit a 4-month high, but the Spanish reading came out at its lowest for 2 and a half years. The lack of data for this week may act as a driver for growth purely because there should be no shocks.

 

The only real piece of data to watch for the EUR will be on Thursday at 9 A.M., with the European Central Bank’s Economic Bulletin presenting the latest assessment of the economic status of the Eurozone. There has been a slight disparity between PMI strength and GDP growth weakness in the area, so many are hoping this will get explained in the bulletin.

 

Otherwise data is quiet, no significant volatility is expected, with the only likelihood being a positive result on Thursday, which could mean a boost for the currency.

 

Data to watch:

 

24h               CAD August Civic Holiday

23:01            GBP BRC Like-For-Like Retail Sales (YoY) (Jul)

(Tue) 04:30  AUD RBA Rate Statement

(Tue) 04:30  AUD RBA Interest Rate Decision

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