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Pound sees light at end of tunnel. Hopefully it’s not a train.

Pound sees light at end of tunnel. Hopefully it’s not a train.

Sterling continued to gain yesterday from an underlying easing of political tensions with Theresa May set to be officially appointed as Prime Minister later today. This saw a major correction of recent losses against all major pairs throughout the day.

The largest strengthening for Sterling yesterday was over 4% against the Japanese Yen. GBPJPY moved from 133 to 138 after Japanese Prime Minister Shinzo Abe formed a supermajority in Parliament. The significance for currency markets is more forceful political/fiscal action going forward, potentially ¥10-20 trillion in quantitative and qualitative easing which will lead to a weaker Yen. The downward revision to Japan’s industrial production data for May also dampened demand for the Yen.

With no key data due from the UK today, the focus will be on tomorrow’s Bank of England Monetary Policy Committee meeting as the markets are speculating on a potential 0.25% cut in rates, a new all time low for the UK. Governor Mark Carney did not make any significant comments yesterday, only hinting that some action was possible.

The Euro continues to weaken for a third straight day versus the Pound as the UK is starting to show stability both economically and politically. The single currency ended the day down versus its neighbour by 2.27%, at around the 1.1997 levels. Better than expected German Wholesale Price Index data was unable to help the Euro recover yesterday. Eurozone Industrial Production figures are due at 10am, with consensus set at 1.4%.

US job openings data printed below expectations – it was at 5.50mn for May from a revised 5.85mn previously. The data has revealed a solid increase in jobs at a faster pace than suggested by the payrolls report but showed further evidence of skills shortages. Skill shortages are likely to lead to higher wage costs over time, perhaps adding to the argument for rate hikes.

Data to watch: 10am Euro May Industrial Production. 1.30pm US June Import and Export Prices, month on month & year on year.

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