UK GDP could restart the parity fears
Sterling was flat throughout the morning until USD demand rose and coincided with Reports, purportedly from a senior Downing Street official, that Boris Johnson will face a no-confidence vote when Parliament resumes. The report added that if a general election has to occur, it would take place days after Brexit deadline of October 31. From the morning’s peak in the 1.2180-85 region, Sterling plummeted nearly a cent against the Dollar to threaten the 1.2100 mark before drifting back up. The Euro followed much the same pattern, nearly break below the 1.0800 mark before the Pound regained lost ground.
This morning the Pound is above 1.2100 as markets await the UK second-quarter GDP which is expected to be flat. The market focus on this data is key however and could set the Sterling trajectory well beyond this weekend. If the economy has stalled, as expected the minutiae of the manufacturing and investment data will be scrutinised. An economic contraction will open the door to new lows for the Pound.
The NA opened its session with a deceptive calmness yesterday. Commodity-linked currencies took a breather following a battering, triggered by a rout in crude oil futures prices. WTI tanked 6% dragging the NZD to its lowest level since January 2016 whilst dollar-cad jumped to a 2-month high. The recent moves were driven by a combination of the new additional 10% tax on Chinese imports, a re-adjustment of the CNY, chops from central banks and growing concerns of a global economic meltdown.
Yields of the key US 10-year tested the vicinity of 1.80% late yesterday, although they lost some upside momentum afterwards.
Negotiations around the US-China trade war between the White House and some US companies were ongoing yesterday regarding the resumption of business with tech giant Huawei, all after China said it will halt its purchases from US farmers.
The Dollar remained steady and with a light calendar today with Producer Prices for the month of July will be the sole publication in the US docket.
The Euro looks set to remain sidelined against the Dollar around the 1.1200 neighbourhood, following the move to weekly highs of 1.1250. The pair have since pushed lower and have been bouncing at the 1.1180 area.
In light of any further conflict coming from the US-China trade front, Italian politics has emerged as a source of volatility in the markets, as frictions within the coalition government have intensified. This potentially has opened the door to a snap election, eventually leading to a victory for Slavini’s Lega Nord.
Data to watch
09.30 GBP – GDP
GBP – Manufacturing Productions
GBP – Prelim GDP
13.30 USD – PPI
USD – Core PPI