Sterling opens strong despite weak rhetoric
GBP Sterling was held back on Friday by the fragile confidence in the economic outlook. Andre Bailey, BoE Governor stated there was evidence of a bounceback housing and car sales but hospitality and entertainment were still quiet. Speculation grew that the Bank of England could enact negative interest rates in the future and so comments from officials will be scrutinised.
There is no news to report on the UK/EU trade talks with negotiations set to resume this week. Overall, the Euro strengthened to 2-week highs near 1.0950 before a limited correction to 1.1000 and Sterling was held below 1.2600 against the Dollar. Futures market data showed a slight decline in bets against the Pound providing some scope for renewed selling if confidence dips.
This morning the Pound opens near 1.0950 on the Euro and little changed against the Dollar; confidence in the UK economy remains weak. The EU recovery package, if agreed, will feed fears that the UK will lose out in relative terms. Friction with China will also hurt potential investment inflows.
US housing starts increased to an annual rate of 1.19mn for June from 1.01mn the previous month and slightly above consensus forecasts while building permits increased to 1.24mn from 1.22mn, slightly below expectations. The University of Michigan consumer sentiment index declined to 73.2 for the provisional July reading from 78.1 and below market expectations of 79.0. There was a small decline in the current conditions index and larger decline for the expectations component.
Overall, the dollar gained an element of support on defensive grounds amid unease over US coronavirus developments.
The Euro is starting off the week on a positive footing and is lifting itself to 4 month highs of 1.1465 against the Dollar.
The upside momentum in the Euro remains as markets continue to focus on the EU Summit in Brussels. Investors continue to look to the recovery of the common currency as the main catalyst as rising hopes of a deal can be reached as EU leaders continue to discuss the recovery fund.
CFTC data recorded an increase in Euro long positions to near 2-year highs, increasing the potential for selling pressure if there is disappointment over the fundamental outlook and a reversal in speculative buying.
Data to watch
Day 4 – EUR – EU Economic Summit