Sterling strength still firm
The Pound started out firm ahead of Friday’s New York open and pushed above 1.2650 against a weak US Dollar. Firmer risk appetite provided net support for the UK currency, although gains faded later in the day as the US Dollar regained some ground. After the news that the EU would be granted access to UK clearinghouses for derivatives settlement, optimism rose for further progress in UK/EU trade talks which helped underpin Sterling. The Euro was unable to make headway and settled close to the1.1175 area. Futures market data recorded a 25% decline in bets against the Pound as hedge funds took a slightly less aggressive Pound selling stance.
Risk appetite is firm at market open this morning, allowing Sterling to rise just above 1.2650 against the weaker Dollar again. Today’s Pound focus will be Bank of England Governor Andrew Bailey’s speech ahead of tomorrow’s monthly GDP release.
US producer prices declined 0.2% for June compared with expectations of a 0.4% increase with a 0.8% annual decline. Core prices increased 0.1% over the year with the data reinforcing expectations of weak inflation pressures over the next few months and the CPI data will be released tomorrow.
Dallas Federal Reserve (Fed) President Kaplan stated that his base case is for a GDP decline of 4.5-5.0% for 2020 and that the economy has a lot of spare capacity and he expects disinflationary pressure. There were strong expectations that the Fed would maintain very supportive monetary policies.
Italian industrial production recovered sharply for May with a 42.1% monthly increase following a 20.5% contraction the previous month. French output increased 19.6% following the 20.6% decline for April with the data overall providing an element of Euro support on recovery hopes. Dutch Prime Minister Rutte stated that he will seek guarantees on budget reforms in talks this week on the EU recovery fund. There will inevitably be further discussions ahead of the EU Summit with the fiscally-conservative countries looking to secure reforms and concessions in order to support the proposed EUR750bn fund.
The Euro advanced to highs just under 1.1325 as Dollar demand remained weak before consolidating around the 1.1300 area. As of writing, the Euros trades around the 1.1315 mark against its US counterpart.
Data to watch
15:30 – GBP – BOE Gov Bailey Speaks