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Will Carney derail GBP recovery or bolster it?

Will Carney derail GBP recovery or bolster it?

Sterling saw a second consecutive day of gains yesterday, rising 1.21% against the Dollar through the European trading session. Talks at the EU Leaders’ Summit revealed that the UK may take longer than expected to leave the Union, and that the only way the UK could gain access to the Single Market would be to allow the free movement of people.

The political environment also remained extremely uncertain as leadership nominations for the Conservative Party opened while Labour leader Corbyn now faces a formal challenge from former shadow business secretary Angela Eagle. Nicola Sturgeon said she will do everything in her power for Scotland to remain in the EU, increasing the likelihood of a second Scottish independence referendum.

Today is the first day of post-Brexit economic figures from the UK. The UK Trade Balance will be released at 9.30am today, along with the final GDP figure for Q1. Negative data could be detrimental to the Sterling recovery we are currently seeing. At 4pm Bank of England (BoE) Governor Carney will make a speech on how the BoE would cope with Brexit, followed by a press conference.

The Dollar Index, which tracks the Greenback against a basket of six major rivals, edged up 0.1% yesterday and remains near three-month highs. The US Dollar has appreciated as risk averse investors are buying it as a “safe haven” following Britain’s vote to leave the EU. However the prospect of an interest rate hike this year seems to have faded, which could undermine any further strength for the Dollar.

Data wise, the US pending home sales fell by -3.7% for May, after a 3.9% gain previously. The US personal spending and income data was close to expectations while the core PCE annual inflation rate was also in line with expectations at 1.6% from the previous figure of 1.6%.

The Euro posted the third consecutive day of gains against the Dollar on Wednesday, with EURUSD breaking through the 1.1100 level during the European session. There seems to be an easing of the fear surrounding the UK referendum which has curtailed the Euro selling.

There was a further increase in German consumer confidence for June with income expectations at a record high. German inflation data was in line with expectations with an increase to 0.3% from 0.1% the previous month, which suggests an easing of inflation pressures.

Data to watch: 9am German Unemployment Change. 9.30am UK GDP Q1. 10am EU June CPI. 1.30pm US Initial Jobless Claims. 2.45pm Chicago PMI. 4pm BoE Gov Mark Carney Speaks. 6.30pm FOMC Member Bullard Speaks.

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