GBP awaits BOE rhetoric
Despite UK inflation dropping to 4-year lows the Pound showed little reaction to the data, but it did give rise to concerns that higher food prices would erode consumer spending power.
EU Commission head Usula Von der Leyen stated that in her view the not even half the ground had been covered to reach a Brexit deal but the EU would do all in its power to reach a deal. Some German sources close to the matter indicated the “real talks” would only start in September so the market will scrutinise EU Summit rhetoric in the meantime.
The Pound drifted lower as today’s Bank of England policy decision generated caution and a dip in global risk appetite also eroded support. Sterling dipped to lows near 1.2510 on the Dollar before bouncing back to 1.2550 whereas the Euro was little changed around 1.1173.
Forecasts for the Bank of England today’s announcement are for an increase in asset purchases (QE) by at least a further £100bn and interest rates to be held at 0.1%. As always the rhetoric on the potential economic recovery and future policy direction will be watched closely. A weaker tone in equities hampered Sterling sentiment and it hugs 1.2550 on the Dollar and the Euro traded around 1.1160. We are expecting high volatility later on the BoE announcement and in light of the influence of global risk conditions.
US housing stats recovered to an annualised rate of 0.97mn for May from 0.93mn the previous month, although this was below consensus forecasts of 1.09mn while building permits were also marginally below expectations at 1.22mn. Data releases had little underlying market impact.
In the second part of his testimony to Congress, Federal Reserve (Fed) Chair Powell stated that the central bank stands ready to do more to aid recovery if more needs to be done. He also commented that congressional support was essential to underpin the economy.
The Euro continues its range bound trading against the Dollar with an underlying lack of commitment. Markets were uneasy over a slightly less confident tone surrounding risk appetite, although overall Dollar sentiment continues to be seen as fragile amid reservations over fundamentals and domestic tensions.
The Euro continued to edge lower during the US session with an element of caution ahead today’s EU Summit as markets will look closely at rhetoric on the proposed EU recovery fund. Comments from officials ahead of the meeting suggested there are still important divisions and limited progress is likely.
As of writing, the Euro trades around the 1.1250 against its US counterpart.
Data to watch
12:00 – GBP – Asset Purchase Facility
12:00 – GBP – MPC Asset Purchase Facility Votes
12:00 – GBP – MPC Official Bank Rate Votes
12:00 – GBP – Monetary Policy Summary
12:00 – GBP – Official Bank Rate
13:30 – USD – Philly Fed Manufacturing Index
13:30 – USD – Unemployment Claims
15:00 – USD – CB Leading Index