GBP slumps, all eyes on the US
GBP: The new PM has made it abundantly clear that a No-Deal Brexit is a possibility – this is the reason for the recent ££ sell-off. Will GBP rebound? The recent losses in GBP will be hard to recoup, let’s not beat about the bush. The parliamentary summer recess (until 3rd Sep) will mean less headlines, and in a market with a short memory, perhaps we will see a slight rebound in GBP.
If GBP does rebound 1 or 2 percent, will people take advantage and sell GBP at higher levels, expecting a medium-term decline later this year? More importantly, will people BUY at those higher levels, expecting GBP to rally into late 2019?
I have not spoken to anyone recently who fits into the 2nd category.
This Thursday – Super Thursday, with the publication of UK statistics and an interest rate decision. All eyes will be on Governor Carney’s speech regarding monetary policy, and comments regarding Brexit. Volatility likely to ensue!
USD: Tonight the Fed is expected to cut interest rates – it is a well signalled move (the first cut in a decade!). the cut is to ‘give a slight jolt’ to an economy slowed down to global headwinds and lower than expected domestic inflation.
More important is the news conference after the evening announcement. Chairman Powell will explain why the move was required, and what we should expect through 2019. This will dictate the USD trend through the summer and autumn. Volatility is expected as the market attempts to set its risk profiles for the slow summer months.
EUR: Last week the ECB signalled an extension of a period of lower rates and increased stimulus. Many think an extension of a policy which has brought zero results is unlikely to suddenly bring results – therefore the EUR has been suffering. This morning’s Inflation data and preliminary GDP was broadly inline with consensus – a positive surprise in Inflation would have boosted the EUR, but it was not to be.
AUD: Positive inflation data overnight (annualised at 1.6%) saw a rally in AUD, approaching 0.69 vs USD. A possible pause or slowing of the pace of future rate cuts seems likely.
CAD: GDP data will give some direction this afternoon, and moany expect decent data, extending a decent strong run for the CAD.
China – US trade: A relatively ‘positive’ tone after the overnight trade talks, but subsequent comments from Chinese officials reiterated that it was the USA that is constantly changing its mind. In light of that, we must assume that this tension will continue to bubble through 2019.
The Trump – Macron ‘wine-war’ is much more interesting .. If the future of international trade policy will be determined by a tee-totaller preferring the ‘look’ of US wines to French wines, it will be an exciting world that our children get to live in!!