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Hold on to your sun hats, volatility ahead

Hold on to your sun hats, volatility ahead

Last week the Euro saw a sensational five day run of gains against Sterling to leave GBPEUR at fresh 2016 lows. The single currency strengthened against Sterling, bringing GBPEUR to 1.1547 on Friday evening. Today’s French, Spanish, Portuguese, Greek and Italian bank holidays will mean trading volumes in the European session may be reduced, causing volatility. However, expect trading levels to return tomorrow in time for the German ZEW Survey.

On an otherwise quiet Friday, Bank of England Chief economist Haldane stated that monetary policy can only offer short-term relief and that Brexit represents a structural shift in the UK’s economic and trading regime. Sterling rallied against the Dollar following the US retail sales data, but failed to hold above 1.3000, closing in on 1.2900 towards the end of day.

The sell-off in the Pound on Friday was also viewed as a repositioning attempt by the markets as we head towards the UK CPI and jobs report data due later this week. There is no data due from the UK today and this week’s macro updates from the UK hold significance as they are expected to take into account the post-Brexit fallout on the British economy. Expect choppy trading conditions for Sterling ahead of tomorrow’s first round of data.

Dollar turbulence was caused by a string of poor data from the US on Friday. Monthly Core Retail Sales printed down at -0.3%, far below the previous month’s 0.9% and the expected 0.2%. This was followed by poor PPI data, with July’s figure showing a 0.4% reduction in the price of finished goods and services sold by producers.

The poor data caused the Dollar to briefly fall against Sterling. However, the gains were eradicated as the prospects of aggressive monetary easing from the Bank of England and uncertainty surrounding the economic implication of the historic EU referendum continued to weigh on the British Pound.

There is a lack of data due today with just the Empire State Manufacturing Index due from the US. This gives an overall indication of economic health but is unlikely to significantly impact currency markets. Questions about the timing of the next Fed rate hike still dominate the news from across the pond.

Data to Watch: 1:30pm US Empire State Manufacturing Index.

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