Johnson – I’d prefer a deal; not on your terms
A firmer global risk appetite failed to lift the Pound as domestic political woes dominated. Mark Carney, Bank of England Governor, stated that negative interest rates aren’t currently an option and that he was opposed to a change in the 2% inflation target. Boris Johnson sent the EU a letter stating that he’d like a deal, but that there would be no formal negotiations with the EU until the backstop is dropped. Sterling fell on fears that tough UK rhetoric in current talks with EU leaders would increase resistance, and there’s no evidence of a breakthrough.
Sterling dipped to near 1.2100 on the Dollar and 1.0900 on the Euro before a minor technical recovery. Sterling opens this morning at 1.2107 against the Dollar and 1.0928 on the Euro. In the absence of significant UK data, the market will continue to monitor political developments.
Boston Federal Reserve (Fed) President Rosengren stated that US economic conditions are still pretty good and that the Fed has to be careful not to ease too much when there are no significant problems. There would be costs to easing policy too much such as excessive leverage and he was very concerned over financial stability risks. Rosengren has expressed these concerns previously, but the remarks continue to illustrate that there will be significant divisions with the Federal Reserve Open Market Committee. There was some speculation that Chair Powell would be less dovish than expected in comments on Friday.
The dollar overall maintained a firm tone with the trade-weighted index hitting 2-week highs.
The Euro fell for the fifth straight trading day against the Dollar yesterday despite the uptick in the German bond yields. The first five-day losing streak since middle May. The pair rose to 1.1113 during the European session, tracking the rise in the yields, only to end the day on a negative tone at 1.1076.
On a more sour note, the Euro’s inability to show strength despite the recovery in yields more than indicates concerns that Germany’s stimulus, will not be enough to reinforce the economy. So, while the most likely path remains to the downside, the common currency, depending on a continuing rise of German yields today, may end up breaking the five-day losing streak. As of writing, the EUR/USD is trading at 1.1079.
Data to watch
23.00 USD – FOMC member Quarles speaks