UK awaits PM announcement
Sterling continued to be undermined by political uncertainty in the lead up to the Conservative Party leadership results with Boris Johnson still the bookies favourite. Alan Duncan resigned as Foreign Office Minister and Chancellor Philip Hammond and Justice Secretary Davuid Gauke announced their intention to quit if Borisis elected. The risk of government instability and increased likelihood of a ‘no-deal’ Brexit are key concerns for the market. In the event of a Boris administration the rhetoric from UK and EU officials will be significant for Sterling sentiment.
Bank of England Chief Economist Andy Haldane stated that Brexit was undermining the UK industrial strategy and that underlying confidence in the economy remained weak. There was no comment on monetary policy present or future. The Pound retreated back below 1.2500 on the Dollar and the Euro again tested 1.1111 resistance before settling near 1.1130. At market open the Euro is again testing resistance and the Dollar has pushed to 1.2450 as we await the Tory Party announcement around midday.
The Dollar index advanced to 1-week highs yesterday with the Euro against the Dollar drifting under the 1.1200 level.
The Chicago Federal Reserve (Fed) National Activity Index strengthened marginally to -0.02 for June from -0.03 the previous month while the moving average strengthened slightly, but remained in negative territory for the fifth consecutive month. None of the components were able to make a major contribution for the month with only the employment index in positive territory.
President Trump continued his attacks on the Fed and higher interest rates than in the rest of the world, although there was nothing new in the rhetoric and hence US sentiment held firm given existing and prospective yield spreads. Very tight ranges prevailed with inevitable caution ahead of this week’s key Euro-zone data and ECB policy meeting with markets also wary over taking aggressive positions ahead of next week’s Fed policy meeting.
The selling pressure around the European currency picked up extra pace yesterday, sending the Euro against the Dollar to fresh multi-week lows, just above the 1.1200 mark. The pair is down for the third consecutive session this morning, managing to break below the consolidative theme as well as the critical support area in the 1.1200 region and finds itself currently at 1.1190. Additionally, the likeliness of new easing measures to be announced at the next ECB meeting on Thursday will keep the sentiment around the currency depressed for the time being.
A pretty quiet day on the news front with only a single release sees the European Commission publish the preliminary reading of the Consumer Confidence gauge for the current month.