May grabs the reins
The Pound hovered just below 1.3080 against the Dollar as markets opened yesterday.
The CBI industrial orders still beat forecasts, despite declining to 11 for July from 13 previously; cost pressures have increased and investment intentions were restrained. The government announced a relaxation of curbs on public-sector wage growth, which reinforced expectations of a gradual strengthening in earnings growth and, at the margin, could make a Bank of England rate increase more likely.
Theresa May formally announced that she would take charge of Brexit negotiations, much to the surprise of the current Brexit Minister, Dominic Raab. Optimism of an accelerated pace and more decisive stance, pushing for a ‘softer’ Brexit helped underpin Sterling sentiment.
Sterling pushed the Euro to below 1.1235 and to 1.3150 against the Dollar at market open. There may be further short covering ahead of next week’s Bank of England rate decision.
The Greenback traded higher yesterday, with the Dollar Index bouncing from yesterday’s lows near 94.50 up to a high near the 94.65 region. Currency moves, especially for the Euro and US Dollar, have been unusually subdued this week as markets abstain ahead of the all-important trade talks between the European Union President Juncker and US President Trump tomorrow.
In terms of data yesterday, the July Philadelphia Fed non-manufacturing index strengthened to 44.3 from 39.1 pushing pressure on wages and benefits. The Purchasing Managers’ Index (PMI) rose to a 2-month high of 55.5 from 55.4, however the services sector index declined to a 3-month low of 56.2 from 56.5. Employment growth slowed amid difficulties in finding skilled workers, while inflation pressures increased.
In terms of data, we have today’s new home sales, tomorrow’s labour data and the US GDP release on Friday.
Whilst independent economists remain upbeat, IHS PMI surveys hinted at a fresh Eurozone economic slowdown – manufacturing rose but services slipped more than consensus. Eurozone GDP growth of 0.4% in the third quarter was below the ECB’s forecast of 0.5%, meaning the Euro was quoted lower against all other developed world currencies, apart from the Swiss Franc.
The EUR/USD is holding around the 1.1500/1.1850 range, however Trump is proving to be increasingly unpredictable, which probably means traders will err on the side of caution.
Positive comments by Barnier on May’s Brexit proposal saw the Pound Euro rate recover back to above 1.1200, but the ECB Interest Rate decision on Thursday still remains the most influential piece of economic news to come out this week.
Data to watch:
10:00 EUR IFO – Business Climate (Jul)
10:00 EUR IFO – Current Assessment (Jul)
10:00 EUR IFO – Expectations (Jul)
16:00 USD New Home Sales (MoM) (Jun)