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Leadership contest could overshadow Dollar weakness

Leadership contest could overshadow Dollar weakness

Another data-light day meant UK influences were limited and markets focussed on global risk appetite and trade developments. The Euro strengthened to test the 1.1225 level and the US economic data allowed the Pound to peak just above 1.2750 before fading slightly. Futures market data recorded a further increase, in short, non-commercial Sterling positions (bets against the Pound) to the highest level for close to four months, maintaining the potential for short covering (rapid buying, causing a price rise) if there is a shift in sentiment.

Tory Party leadership contenders attempted to differentiate their claims over the weekend with current favourite Boris Johnson suggesting payment of the £39bn to the EU would be withheld if there was no improvement to the current deal. Leadership nominations close later today. Bank of England (BoE) chief economist Andy Haldane’s piece in the Sun on Sunday stated a small increase in interest rates would soon be prudent. Sterling was unable to gain ground this morning as it traded close to 1.2700 against the Dollar and 1.1235 on the Euro as we await UK GDP, Manufacturing, Industrial and Trade Balance Data.


Non-farm payrolls disappointed with only 75,000 added in May compared with forecasts of 185,000, and April’s figure was revised down to 224,000 from 263,000. Manufacturing jobs only added 3,000, the number of employees in retail and government both declined and hourly earnings and weekly hours declined slightly. The unemployment rate held at 3.6% on the month while the increase in average hourly earnings was trimmed to 0.2% compared with expectations of 0.3% and the annual growth slowed to 3.1% from 3.2%.

Confidence in the US economic outlook deteriorated following the disappointing data, the Dollar came under pressure and expectations of a Federal Reserve rate cut also intensified. The futures market data indicated the odds of a June rate cut had increased to 30% and the  Euro tested highs of around 1.1350.


Weaker than expected German Industrial and Trade data Bundesbank Head Jens Weidmann’s comments that the European Central Bank (ECB) forward guidance was justified meant the Euro failed to make headway ahead of Friday’s New York open. Weak US data allowed the Euro to push from the 1.1260’s to 1.1340 by mid-afternoon.

The weekend brought reports that ECB officials would consider a rate cut if conditions deteriorated and the Dollar regained some support. The Euro has retreated to near 1.1300 on the Dollar this morning as European sentiment remained weak.


Data to watch:

02:00 CNY Trade Balance USD (May)
02:00 CNY Imports (YoY) CNY (May)
02:00 CNY Exports (YoY) CNY (May)
02:00 CNY Exports (YoY) (May)
08:30 GBP Manufacturing Production (YoY) (Apr)
08:30 GBP Manufacturing Production (MoM) (Apr)
08:30 GBP Industrial Production (MoM) (Apr)
08:30 GBP Gross Domestic Product (MoM) (Apr)
17:00 GBP BoE’s Saunders speech

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