Sterling engulfed as No-Deal looms
Morning mid-market rates – The majors
July 17th: Highlights
- Concerns over leaving the EU without an agreement drag Sterling lower
- On Balance, U.S. data beating expectations
- Von der Leyen scrapes home to be new EU Commission President
Pound at two-year low versus the dollar
The comments by Jeremy Hunt and Boris Johnson brought home the veracity of a no-deal Brexit to the financial markets which had been avoiding the reality of the UK “crashing out”.
Incoming EU Commission President Ursula von der Leyen, who narrowly received the backing of the European Parliament yesterday, commented that she would be prepared to offer the UK more time to reach an agreement. Such an offer would seem to be pointless now unless it comes with some form of renegotiation compromise.
Sterling fell to its lowest level in more than two years versus the dollar following Hunt and Johnson’s commitment over the Irish border. There was a further rumour overnight that Johnson, the likely winner, would call an early General Election since he believes the opposition Labour Party is in no state to fight given its internal issues.
Yesterday’s employment report was a little worse with market expectations. The new claimant number rose to 38K versus an expectation of 22k. The unemployment rate was unchanged at 3.8%, as was wage inflation at 3.2%, still well above the rate of consumer price increases.
The pound reached a low of 1.2396, closing at 1.2407, its lowest since April 2017. Versus the single currency, where had it appeared to be forming a “bottom”, it resumed its fall, closing at 1.1067 having traded to a low of 1.1051.
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Trump starts his campaign for re-election by “preaching to the choir”
Trump seems to want to please his supporters rather than wanting to be a “uniting” President and he claims that most Americans support his actions.
Making the contest a fight over personality rather than policy may be a mistake since, despite widespread criticism of his methods, the economy is faring well given the issues of global trade and concerns over the relationship with Beijing.
Were the Democrats able to field a tough candidate able to stand up to the undoubted barrage of scrutiny the Republicans in general and Trump, in particular, would create, they would stand a better chance of victory.
The dollar remains driven by the probability of a cut in short-term interest rates at the end of the month, but it is now what will happen following the July FOMC meeting that is interesting traders.
If Fed policy is indeed data-dependent rather than using advance guidance, this cut is unlikely to be followed by another before the end of the year. Jerome Powell and his colleagues will want to be able to assess the effect of this cut before committing any more. They are aware of the perils of moving too fast as has been seen following the third of last year’s rate hikes.
The dollar index rallied strongly yesterday reaching a high of 97.44 and closing at 97.38, as hopes of a series of cuts continue to fade.
New EU Commission President faces difficult task
Von der Leyen found it difficult to gain enough support from MEPs and it may prove difficult to pass any radical bills through Parliament and the degree of negotiation and “deal-making” will increase.
The Green Party which has a strong group within the Parliament didn’t add their support, criticizing her views on climate change and immigration. In the end, it was several Eurosceptic members and the members from previously communist States which saw her gain enough votes. Under von der Leyen the EU is likely to become less welcoming, although one of her major policies is the unification of state unemployment benefit to ensure fair treatment for all. She pledged to “toughen up” borders and will draft in 10,000 new border guards to assist in the process.
Yesterday the euro remained drive by the dollar’s recovery, reaching a low of 1.1201 and closing at 1.1210.
Have a great day!
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”