Pound heading towards two-year lows
The Pound suffered further pressure yesterday morning due to a lack of confidence, compounded by concerns over the short-term growth outlook in anticipation of today’s industrial production and GDP releases. Although improvement in manufacturing data is forecast, following the slump in April, falling short of 1% growth would reinforce fears that Q2 GDP figures would show a contraction. Rising market expectations of a Bank of England interest rate cut over the next 12 months continued to undermine support. Sterling failed to register any support from the Labour Party’s move towards backing a second referendum and a remain vote. The Pound was also unmoved by a House of Commons vote which could make it more difficult to suspend parliament.
Sterling dipped close to 2-year lows, below 1.2450 against the Dollar and the Euro tested the key 1.1110 last achieved 6 months ago. Negative Sterling sentiment and pressure remains at market open, with today’s data key to avoiding falling further through technical levels.
The Dollar neared a three-week high against most if not all of the major currencies yesterday as markets continued to unwind bets on U.S. interest rate cuts. Further gains in the currency, depends on the outlook of the Federal Reserve’s chairman Jerome Powell during two days of Congressional testimony starting later today. Expectations for a rate cut at the next Fed meeting later this month have diminished, but investors still expect a 25 bps cut due to weak inflation and continued worry about growing business fallout from the U.S.- China trade war. The Dollar, however, could continue to stair-step higher if Powell’s comments are portrayed as slightly hawkish or even neutral, which would support the argument that additional rate cuts will be limited.
A renewed stronger Dollar would be an extra worry for the Pound, which is stuck near six-month lows of 1.2450 due to uncertainty over how the U.K will avoid a messy no-deal exit from the European Union.
The demand for the Euro stays subdued this morning as we start the European session in and around the 1.1210 region. Its strong decline against the Dollar seems to have met decent resistance near 1.1190 yesterday just to return later to the current comfort zone in the 1.1200s.
Declining German yields, the ongoing economic slowdown in the euro area and the prospects of rate cuts by the ECB along with the potential return of QE are all weighing on the spot, which is trading in 3-week lows and around 2-cents lower from peaks beyond 1.14 the figure recorded in late June.
On the data front, Italian Industrial Production figures will be the sole release today, although all the attention will be on the congressional testimony by Fed’s Powell and the release of the Federal Open Market Committee minutes.
Data to watch:
00:30 AUD Westpac Consumer Confidence (Jul)
01:30 CNY Producer Price Index (YoY) (Jun)
01:30 CNY Consumer Price Index (MoM) (Jun)
01:30 CNY Consumer Price Index (YoY) (Jun)
08:30 GBP Manufacturing Production (YoY) (May)
08:30 GBP Manufacturing Production (MoM) (May)
08:30 GBP Industrial Production (MoM) (May)
08:30 GBP Gross Domestic Product (MoM) (May)
n/a EUR 10-y Bond Auction
14:00 USD Fed’s Chair Powell testifies
14:00 CAD Bank of Canada Monetary Policy Report
14:00 CAD BoC Rate Statement
14:00 CAD BoC Interest Rate Decision (Jul 10)
14:15 CAD BoC Press Conference
17:10 GBP BoE’s Tenreyro speech
17:30 USD Fed’s Bullard speech
18:00 USD FOMC Minutes
22:45 NZD Credit Card Spending (YoY) (May)
22:45 NZD Electronic Card Retail Sales (MoM) (Jun)
23:50 JPY Foreign Bond Investment (Jul 5)
23:50 JPY Foreign Investment in Japan Stocks (Jul 5)