Global Themes

  • A wild ride for Sterling
  • Germany hopes to cool trade wars
  • Market focus shift stops USD drop

GBP

A wild ride for Sterling 

In the early part of yesterday’s trading session, Sterling clawed its way to 3-week peaks above $1.3350 against the weaker US Dollar, after shrugging off the resignation of Brexit Secretary David Davis. Market participants betting positively on the British Pound were then dealt another surprise as Boris Johnson resigned from his post as Foreign Secretary. As a result of this political turmoil, GBP/USD tumbled around 180 pips, eroding all previous gains and more. Against the Euro, the pound slipped towards 4-month lows threatening to break under the €1.12 mark. A major concern to investors was the growing risk of a challenge to Prime Minister Theresa May’s leadership, but these fears have faded for now, and Sterling is attempting a recovery this morning.

The political chaos and failure to unite her cabinet towards a soft Brexit is not encouraging for the UK economy and the pound, thus sparking these wild swings in the currency market. Mrs May has announced that the publication of the Brexit White Paper will now be delayed until next week, with the European Union already unlikely to accept the new proposal. The ongoing Brexit concerns dragging on, and further political crisis lurking, could be enough to keep the Bank of England from raising interest rates in August, which could further harm the value of Sterling.

  •  A plethora of economic data from the UK docket all drops in at 9:30am this morning. Industrial output for May is expected to improve to 0.5% from April’s number of -0.8% m/m. Manufacturing output for May is also forecast higher at 0.9% from the previous -1.4% m/m. The headline figure is the monthly GDP estimate, expected to show the economy grew 0.3% m/m in May. This is the first publishing of monthly GDP figures in the UK and could cause increased volatility as a result.

EUR


Germany hopes to cool trade wars 

German Chancellor Angela Merkel said yesterday that she hopes a summit between the EU and China in Beijing on July 16th and 17th could prevent further global trade tensions. Meanwhile at the same press conference, China’s Premier Li Keqiang said China would open its borders and domestic markets further for foreign investors, promising that German companies would not be risking their intellectual property if they set up shop in the country. EU officials have said China is wanting the EU to issue a strong joint statement against US President Donald Trump’s trade policies at that meeting (source: Reuters). If the move is successful, this could cool global tensions and calm volatility in the markets.

  •  Today the German ZEW business survey will be released which measures investor confidence in the largest economy in the Eurozone. If the report is positive, this could give the Euro a boost and put Sterling under further pressure and allow GBP/EUR to move lower towards €1.12.


USD

Market focus shift stops USD drop 

The US Dollar found some respite during yesterday’s trading, as focus shifted from trade tariffs to the political situation in the UK. The dollar index, which measures the dollar against a basket of currencies, climbed back above 94 after EUR/USD failed to break back above the $1.18 level. The move looked like it would happen when it reached $1.1790, but we now sit in the middle of the $1.17 handle.

  • Top line data releases from the US are limited until Thursday’s inflation release. The main story from yesterday was President Donald Trump nominating Conservative judge Brett Kavanaugh for the Supreme Court. Potential updates on trade tariffs may be limited with the President making a visit to the UK at the end of the week.


*The rates displayed by our free currency converter are neither "buy" nor "sell" rates, but interbank rates, the wholesale exchange rates between banks. Interbank rates don’t include the spreads, handling fees, and other charges that may be assessed by foreign exchange providers. Please note that, as such, these rates are provided for indicative purposes only. Prior to booking a transaction, Western Union Business Solutions will advise you of the actual rate then available for a particular currency transaction.

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