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Carney to be cross-examined on inflation and referendum

Carney to be cross-examined on inflation and referendum

Underlying uncertainty was still hindering Sterling’s progress against major currencies yesterday. The Pound tested support close to 1.2900 against the Euro and dipped to recent lows just under 1.4450 against the Dollar.

Despite opinion polls continuing to suggest a lead for the “stay” campaign and the average of bookmakers’ odds implying that the probability of an exit has fallen to 22%, the continuing “Brexit” concern discouraged further Sterling purchasing. Overall risk conditions were generally less favourable which also curbed support, especially with oil prices lower on the day.

Bank of England Governor Carney’s testimony will be watched closely today for potential policy responses to the EU referendum. Implied volatility, although reduced, is still high. On Thursday the BBC holds a “Brexit” debate and Friday sees the start of the government’s four week purdah period, where UK civil servants will be silenced on all referendum matters.

The Euro remained volatile against the Pound in yesterday’s European trading session as mixed data from the Eurozone resulted in a 0.5% gain appearing and disappearing between 8.15am and 11.30am. The German Markit services, manufacturing and composite data provided uplift as they surpassed market consensus. However, Eurozone Markit services, manufacturing and composite data all missed targets and printed lower than last month, reversing the gains made.

The ZEW survey will publish the Economic sentiment for the Eurozone area today. This will then be followed by the Eurogroup Meeting and the financial stability review, which is published twice a year and provides an overview of vulnerability and risk to financial stability in the European Union member states. The German first quarter GDP (gross domestic product) figures are also due today, with early predictions set at the last quarterly figure of 1.3%.

The Dollar started the week off on a firm note, although it was unable to make any major moves due to the lack of top tier economic data releases. US manufacturing data came in slightly worse than expected for May, although the impact on the markets was minimal. It was more of the same from the Fed officials, as St Louis President Bullard and Philadelphia head Harker both left the door open for a June rate hike, unless the data is weaker than expected.

Sterling rallied against the Dollar in the morning reaching 1.4548 before the hawkish tone from the Fed officials gave the Dollar bulls a boost and helped to give the Greenback its second straight day of gains against the Pound. The pair opened this morning at 1.4485, down 0.16% from Monday’s open.

Data to watch: 7am German Q1 GDP, year on year and month on month. 8am European Central Bank’s Praet Speech. 9.30am UK April Public Sector Net Borrowing. 10am German May ZEW Survey, economic sentiment and current situation. 10am UK Inflation Report Hearing. Euro May ZEW Economic Sentiment. 1pm EU Financial Stability Review. 3pm US April New Homes Sales & Change month on month.

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