Pound Stutters as Tory Infighting Raises Brexit Anxieties
Sterling started this week’s session by giving back some of its recent gains versus the majors. Demand for the Pound was curtailed by fears that discord within the Tory party could derail the Brexit process.
Chancellor Philip Hammond, a proponent of a ‘softer Brexit’, claimed that cabinet members were leaking stories to the press in order to weaken his position because of his views on Brexit.
This latest twist came just a few days after a shift in rhetoric, which saw the UK government strike a more conciliatory tone with EU negotiators.
Sterling had responded positively to the constructive talks, however, fears of Britain failing to agree a new trade deal with the EU returned and the Pound suffered following the latest Tory party infighting.
The big event today is June’s UK inflation report, which is tipped to remain at a four-year high of 2.9%.
GBP/EUR Slides 60 Pips Despite Soft Eurozone CPI Print
The Pound to Euro exchange rate tumbled over half a cent yesterday, falling from a three-week high, as Brexit anxieties weighed on demand for Sterling.
The single currency managed to post gains against the Pound – largely due to the latest bout of Tory infighting – even though Eurozone inflation printed at 1.3% for June. The lowly CPI figure means that policymakers at the European Central Bank are unlikely to tighten policy at this week’s meeting.
The ECB aims for inflation of around 2.0% and has embarked on a large-scale bond-buying programme in order to drag price pressures higher. The central bank’s QE scheme has helped raise the currency bloc from the doldrums of negative inflation but the €60 billion per month programme has still not driven CPI anywhere near target.
For this reason the ECB could very well strike a cautious tone on Thursday, which could put some negative pressure on the Euro.
GBP/USD Sinks From 10-Month High Ahead of UK CPI Report
‘Cable’ drifted lower by around half a cent yesterday as markets took the US Dollar higher following a torrid session for the ‘Greenback’ on Friday.
GBP/USD had struck a 10-month high on Friday when soft US inflation and retail sales data caused markets to downgrade their medium-term Federal Reserve interest rate expectations. It seems that the latest snag in the Brexit process helped weaken Sterling, while traders were also happy to lock-in profit from Friday’s 10-month peak.
The Pound could post fresh gains against the US Dollar this morning if UK CPI prints above market expectations of 2.9%, as this would likely put pressure on policymakers at the Bank of England to start raising interest rates fairly soon. However, a softer print could drive Sterling lower.
GBP/CAD Holds Steady
The Pound to Canadian Dollar exchange rate remained fairly flat yesterday, with Sterling feeling the pressure of Brexit anxieties and the ‘Loonie’ hit by renewed concerns over oil prices.
Global crude prices cooled yesterday due to fears that US shale production could prevent oil markets rallying, despite a series of coordinated production cuts from the world’s largest producers.
Pound to Australian Dollar Exchange Rate Softens as Chinese GDP Impresses
Sterling softened slightly versus the Australian Dollar yesterday as demand for the risk-sensitive Antipodean was bolstered by a set of optimistic growth figures for China.
Chinese GDP printed at 6.9% in the second quarter, beating forecasts of 6.8%, as retail sales expanded 11.0% and industrial production advanced 7.6%. The impressive figures were seen to bode well for future trade between China and Australia, which sent the ‘Aussie’ higher because China is the largest buyer of Australian exports.
Pound to New Zealand Dollar (GBP/NZD) Awaits NZ Dairy Auction Results
The Pound to New Zealand Dollar exchange rate slid a little bit yesterday as strong Chinese growth figures boosted sentiment in the Asia-Pacific region and renewed Brexit concerns weighed on the Pound.
Later today we could see some movement in GBP/NZD depending on the latest New Zealand dairy auction. A rise in dairy farmer payouts could boost the domestic currency and lead to increased demand for the ‘Kiwi’, while a drop in dairy prices could negatively impact the New Zealand Dollar.
Data Released
GBP Consumer Price Index (YoY) (JUN)
EUR German ZEW Survey (Economic Sentiment) (JUL)
NZD Dairy Auction Avg. Winning Price MT (JUL 18)