Will Arlene leave Theresa in disMAY?
The British Pound has started the week on a firm note, prompting GBP to extend some gains against the Dollar, pushing the rate towards the mid 1.2700 level.
The spike in Sterling came due to the surprise 5-3 decision to leave rates unchanged by the Bank of England (BoE) at their 15th June meeting. This raised the possibility of the BoE being the next major central bank to follow the Federal Reserve in hiking rates, which likely spurred the GBP buying.
Sterling has held its ground ahead of the meeting between UK PM Theresa May and DUP Leader Arlene Foster later this morning. It’s important to note that both leaders aim to form a minority government after the Conservatives lost the majority they craved at the latest election. In the short term, Sterling will be driven by the UK’s political scenario and the developments from the Brexit talks which started last Monday.
Data wise today, BBA’s mortgage approvals are the only data due in the UK docket.
The Dollar took a downward slide against six major currencies after falling 0.4% on Friday as financial investors’ lack of faith in another rise in U.S. interest rates this year kept the Dollar pinned back. The Federal Reserve looked to hike interest rates again later this year, and this could now potentially happen as soon as mid-July, however it is more likely to increase rates again by the end of 2017.
A plethora of U.S. data is due out this week that includes the June consumer confidence and gross domestic product (GDP), which is one of the primary indicators used to gauge the health of a country’s economy. It represents the total Dollar value of all goods and services produced over a specific time period.
On the political front, the U.S. Senate hopes to vote on a healthcare bill this week to replace Obamacare. The Trump administration will find it hard to follow through with tax cuts and fiscal stimulus steps, seen as dollar-supportive factors, without passing the healthcare bill first. This could be a positive surprise for the Dollar if the healthcare bill actually goes forward.
Last week saw strong European data released in the form of PMI Manufacturing data, supporting the case for President Draghi to normalise his policy.
Mario Draghi is due to start the European Central Bank’s (ECB) Sintra (Portugal) conference today, with opening remarks at 6:30pm BST. The ‘ECB Forum on Central Banking’ runs through Wednesday, with attention in particular directed at the ECB’s eventual tapering strategy. President Jens Weidmann from Bundesbank commented that “If the solid economic development and price development continues, as expected, it would be time to take a look at an exit from the very easy monetary policies”. If Draghi reverses his current quantitative easing strategy, it is expected that Euro will gain strength, but if current policy in maintained then Euro weakness is expected to continue.
The German business sentiment index is released today by the CESifo Group. The IFO survey is classed as an indicator for economic activity in Germany, demonstrating an early index of current conditions and business expectations. The expectation from Danske Bank is that the figure will decline to 106.1 in June from 106.5. If all goes as expected then swings in currency pairs will not be substantial, but if actual readings differ then the market may alter accordingly.
Data to Watch:
9:00am EUR GER IFO – Business Climate (Jun), IFO – Expectations (Jun), IFO – Current Assessment (Jun).
1:30pm USD Durable Goods Orders (May), DGO ex Transportation (May).
3:00pm USD Dallas Fed Manufacturing Business Index (Jun).
6:30pm EUR ECB President Draghi’s Speech.