Opportunity for Sterling buyers
Overall Sterling sentiment remained generally fragile with further concerns surrounding the growth environment and continued confusion surrounding Brexit negotiations. Although there were no major negative developments, a key issue was a lack of bullish news. Given underlying confidence in the Eurozone outlook and a more positive Dollar tone following Friday’s employment report, Sterling remained generally on the defensive with the trade-weighted index at a five-month low.
British house prices rose at their slowest pace in over four years in the three months from April to July as households felt the pinch of inflation which is rising faster than wages. The increase in inflation coupled with static wage growth is a key driver for an increase in interest rates. We await any more data releases from the Bank of England amidst fresh Brexit jitters which continue to haunt the GBP markets. Currently, markets are doubting Theresa May’s future as the UK’s PM amid a drop in market confidence on May’s ability to handle the Brexit talks, especially after the election debacle.
Data-wise, the session remains light amid no economic news from the UK docket.
The US dollar index, which tracks the Greenback against a basket of its major competitors, was down 0.1% on the day yesterday. The lack of data led markets to be fixated on Federal Reserve (Fed) speakers Kashkari and Bullard who both displayed some concerns around the economy, growth and inflation, although Kashkari was on the more optimistic side.
St Louis Fed President, Bullard, maintained his cautious tone surrounding interest rates but repeated his calls for balance-sheet adjustment to start soon with little impact on Fed Funds futures as the Euro found support near 1.1780 yesterday afternoon. Liquidity conditions will remain notably thin in the short term due to the European and US holiday season which will maintain the risk of erratic trading conditions.
The Euro gradually strengthened against the Dollar yesterday, reaching levels of 1.1800 again since its fall last Thursday. Against the Pound, Euro continues to show strength as the GBPEUR rate is at its lowest in eight years.
Eurozone Sentix investor confidence index edged lower yesterday from 28.3 the previous month to 27.7 for August, marginally below consensus expectations. Further, German export and import growth disappointed this morning, with exports falling 2.8% month/month and imports 4.5% month/month.
Overall, liquidity conditions will remain notably thin in the short term due to the holiday season so a careful eye should be cast over erratic trading conditions. With a lack of data out on all fronts, the Euro and its peers will be exposed to market sentiment and investor confidence.
Data To Watch:
6:00am EUR Current Account n.s.a. (Jun), Trade Balance s.a. (Jun), Exports (MoM) (Jun), Imports (MoM) (Jun)