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Potential for increased volatility as US celebrates Independence Day

Potential for increased volatility as US celebrates Independence Day

Stronger than expected Manufacturing PMI figures for the UK on Friday helped soften the Sterling sell off throughout the day. However, the impact was limited given that the data was collected before the UK referendum result. Sterling fell early in the European trading session, but recovered to above 1.3300 against the Dollar before scheduled economic data was released across the pond.

Expectations that the Bank of England will cut rates were supported again on Friday, further reducing confidence in the market. Chancellor Osborne outlined plans to cut corporate tax rates to attract more inward investment and dissuade foreign business owners from leaving the UK post-Brexit. Today, PMI figures continue to roll out for the UK as Construction PMI is due for release at 9.30am.

The Dollar suffered on Friday due to uncertainty over the fallout from Britain’s vote to exit the European Union and the reduced expectations of a U.S. interest-rate hike this year. Federal Reserve vice-chair Fischer opined that by July the committee would have analysed a longer term period, going beyond the last few months, allowing them to decide on rate hikes.

Data wise, the ISM Manufacturing PMI came in above expectations for June. The data showed 53.2, which was a big improvement from the 51.3 for May. The US market will be shut today due to Independence Day, so expect reduced trading volumes which may increase volatility. The market will also be driven by news out of the UK and the Eurozone.

The Euro reached another two-year high against the Pound on Friday amidst Sterling weakness. There was also strength for the single currency against the Dollar. EURUSD surpassed 1.1150 through the day before settling just above the 1.1100 threshold. This morning, Spanish unemployment has fallen by 124,000.

Data to watch: 8am EUR Spanish Unemployment Change MoM. 9.30am GBP Construction PMI. 10am EUR PPI Inflation MoM.

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