We could see rate cuts, but we’ll definitely see Boris
Sterling continued to strengthen through the day yesterday from 8am to midday. The gains trailed off, however, after briefly breaching 1.3300. The reversal came as there was increased uncertainty surrounding today’s Bank of England policy meeting; there are further expectations that the Monetary Policy Committee could cut interest rates. The overall market consensus is that there will be a vote in favour of reducing interest rates to 0.25%. As the move has been partly, but not completely, priced into the market already, the result will cause Sterling volatility either way.
In political news, Theresa May officially replaced David Cameron as the British Prime Minister yesterday. The cabinet reshuffle is ongoing, but we already know that David Davis will be “Brexit Secretary”. Philip Hammond has replaced George Osborne as Chancellor, however, the global media is more excited about another appointment: Boris Johnson, Foreign Secretary. Presumably Prince Philip had declined the role. There will likely be high Sterling volatility with the interest rate decision and the new Chancellor’s first comments today.
The Euro strengthened versus the Pound by 1.62% during yesterday’s European trading session despite poor European industrial production data. The single currency finished the day up at around the 1.1805 levels. There is no data of note from the Eurozone area today and any volatility will be generated across the Channel.
The Dollar was unable to gain much traction through the day yesterday as import prices printed significantly softer than expected for June. Import prices rose a modest 0.2% month-on-month, in contrast to the strong April and May increases. Philadelphia Fed President Harker was more upbeat on the US outlook. For him, Brexit poses little risk to the US economy and Harker still expects up to two interest rate increases this year. However, he was wary of raising rates in the very short term.
Monthly PPI inflation figures will be released, along with weekly unemployment claims, which will give the first insight into the state of the economy across the pond.
Data to Watch: 12pm GBP BoE Interest Rate Decision. 1:30pm USD Initial Jobless Claims, USD PPI Inflation, Core PPI Inflation.