Pound loses ground
The Pound gave back some of the gains made earlier in the week yesterday following the unexpected shift by the Bank of England’s chief economist to potentially support a rate hike. While higher rates would give a reason to buy the UK currency, the political situation and Brexit unknowns are serious reasons to consider investing elsewhere and are expected to prevent Sterling’s recovery for the time being.
Sterling has been seen struggling to extend beyond yesterday’s highs against the Dollar, which reached around the 1.2728 mark, as the bulls remain cautious amid ongoing UK political turmoil. The pressure on the Pound has been escalated in the wake of looming political uncertainties over May’s Conservatives Party’s deal with the Democratic Unionist Party (DUP). Latest reports have cited that the members of the DUP in Ireland have refused to answer May’s calls for 36 hours.
It is important to note that the first key steps to the Brexit process have begun; with Theresa May explaining at a Brussels summit yesterday that the EU citizens legally residing in the UK would have the same rights as British citizens after Brexit. A new “UK settled status” will grant those who have spent five years in the UK equal rights on healthcare, education, benefits and pensions. Before May’s offer, the EU proposed that Britons living in the EU and the EU citizens living in the UK should continue enjoying the same rights, enforceable by the European Court of Justice.
The US Dollar Index (DXY) started the day on the back foot this morning, currently hovering around 97.15. The recent recovery in crude oil prices plus the soft tone in US yields as of late have weighed on the buck’s performance, prompting DXY to add further distance from highs earlier in the week. The Dollar gained some traction at the beginning of the week when it was propped up by supportive Fedspeak signalling the likelihood of further tightening by the Federal Reserve in coming months.
Today, we will see US data released in the form of manufacturing and services PMI, followed by new home sales and Federal open market committee member Powell’s speech.
The single currency is trading on a firm footing at the end of this week, taking EUR to intra day highs versus the USD. Yesterday official talks finally get underway at the EU summit. The British PM, as aforementioned, made an offer proposing around three million EU citizens living in the UK would be allowed to stay after Brexit talks were finalised. German Chancellor Angela Merkel labelled the plan a “good start” but concerns are still apparent for the future of citizens on both sides of the English channel.
Eurozone Purchasing Managers’ Index (PMI) figures out today are expected to remain relatively unchanged in June, with a slight dip in the manufacturing index anticipated to 56.8 from 57.0. Activity in the euro area is still strong but downside risk threaten. This risk is governed by new orders and the order-inventory balance starting to diverge which may drag PMI down in June.
Data to Watch:
n/a EUR EU leaders summit.
8:30am EUR GER Markit PMI Composite (Jun), Markit Services PMI (Jun), Markit Manufacturing PMI (Jun).
9:00am EUR Markit PMI Composite (Jun), Markit Manufacturing PMI (Jun), Markit Services PMI (Jun).
2:45pm USD Markit Manufacturing PMI (Jun), Markit Services PMI (Jun), Markit PMI Composite (Jun).
3:00pm USD New Home Sales (MoM) (May), New Home Sales Change (MoM) (Jun).
7:15pm FOMC Member Powell Speech.