Global Themes

  •  Brexit talks keeping a lid on Sterling gains
  •  Euro lifts after hawkish ECB comments
  •  Falling bond yields weigh on Dollar

GBP

Brexit talks keeping a lid on Sterling gains 

Sterling had a solid day yesterday, holding above $1.32 against the US Dollar and €1.13 against the Euro, as the key services PMI number beat expectations. The forecast for the June figure was unchanged at 54.0, but instead we saw an expansion to 55.1, the strongest rate of growth since October of last year. The recent positive news on the UK economy has raised speculation that the Bank of England (BOE) will be in a position to raise interest rates in August, but an important date to look out for will be the 26th of July. This is when we see if the uplifts in PMI have translated into the preliminary GDP figure for quarter two. BOE Governor Mark Carney is speaking at 11:00am this morning and any comments or hints he offers on the central bank’s thinking will be key for Sterling.

  •  While the economic news has been uplifting for the British Pound, gains have been limited because of the ongoing Brexit talks. Prime Minister Theresa May is meeting with German Chancellor Angela Merkel today to try and gain support for the customs arrangement plans she is going to present to the cabinet tomorrow. The plans are being called a "facilitated customs arrangement" – principally meaning the UK would align itself with European Union (EU) rules and regulations post Brexit without being in the single market or customs union. It has been a difficult week for Mrs May, as Brexiteer back bench Conservative MP’s have been lining up to criticise the proposed plans. The PM needs to be able to gain strong backing from both the Chancellor and her own cabinet if progress is going to be made.


Euro

Euro lifts after hawkish ECB comments 

After what was a relatively subdued day in the markets yesterday, the Euro has started today firm against the dollar, up almost half a cent and flirting with the $1.17 handle. A Bloomberg report revealed that some European Central Bank (ECB) policymakers are uneasy about the market expectations of an interest rate hike next year. Apparently, investors aren’t fully betting on a hike until December 2019, whereas some ECB policymakers have indicated a hike in September or October 2019 is plausible. As a result of these hawkish comments, the probability of a September 2019 hike rose from 69% to 80% and the Euro caught a fresh wave of demand.

Amid a data-dry docket today, market sentiment will likely remain focused on monetary policy and politics. The removal of monetary accommodation in Europe should, in theory, strengthen the common currency, but although the ECB confirmed an end to its quantitative easing programme this year, the uncertainty about the timing of raising interest rates has capped any Euro gains.

  •  EUR/USD is eyeing its third consecutive week of gains should demand for the Euro remain buoyant. However, with the Federal Reserve (Fed) minutes today and the ongoing pressure from China urging the EU to join forces against the US trade war threat, there are certainly a lot of issues for traders to monitor and digest.

USD

Falling bond yields weigh on Dollar 

The US Dollar is currently suffering short-term weakness with US bond yields falling. The 10-year yield has fallen away from the 3% mark, where it last traded mid-June. The US Dollar index has fallen to 94.3 where it could find support around the 94 handle. Today could see volume increase back into US derived currency pairs with the national holiday over, however jitters over China could limit any upside. The Fed is set to release the minutes from the last monetary policy meeting at 7:00pm tonight. The minutes could offer clues on rate-hike limitations, which in turn could help speculators price in positions accordingly.

US ISM non-manufacturing is to be released earlier in the day at 3:00pm, with expectations of a fall to 58.3 from 58.6 for June. Despite the slight fall, the number could be irrelevant in the greater picture surrounding the US now.

  •  Today is the eve of when the US intends to place tariffs on $35 billion’s worth of Chinese products, to which Beijing has indicated they will retaliate in kind. We could expect moves to occur over the US/APAC trading session amid volatile market conditions.


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