Politics Holding Sterling Back
July 18th: Highlights
- Brexit talks start
- Inflation data due for release
- Euro higher as dollar slips
MPC to receive inflation guidance
Concerns over a slowdown in economic output are weighing heavily on Sterling despite the currency rising to a level against the dollar not seen since last September.
The pound’s rise against both the dollar and euro over the past couple of trading sessions has been driven by those currencies weakness rather than any strength of its own.
The market expectation is for headline inflation to be unchanged from May at 2.9%. The recent relative strength of Sterling could lead to a slight surprise to the downside. It is likely, however, that anything below 3% will be viewed with relief by the more dovish MPC members.
Sterling remained well above the 1.3000 level against the dollar but fell a little against the euro reaching 0.8825 as the common currency recovered from its technical correction on Friday.
Brexit Negotiations start in earnest as Government infighting continues
Speculation and leaks appear to be how news of any agreement or otherwise will be disseminated since no formal programme of news conferences or releases has been announced. It is probable that David Davis and Michel Barnier will provide snippets of information as and when it benefits their cause the most.
Davis, quite apart from tricky negotiations with Brussels is also facing an outbreak of infighting within his own party. He is the “Champion of Hard Brexit”, adopting a confrontational stance from day one. This pits him against the Chancellor, Philip Hammond, who favours a softer stance. Government Ministers and backbenchers are using the time-honoured tradition of gossiping to the press as their favour method of showing support or otherwise.
The Prime Minister, hardly able to dominate the party as her own support wanes is sounding hollow in her calls for unity.
It is going to be a long summer for the Conservative Party.
Euro recovers as dollar slips
The Euro is at a crossroads against the dollar as a likely widening of the interest rate differential should provide some support for the dollar. It is ironic that there is concern over monetary policy in both economies.
Janet Yellen is constantly being questioned over the need for rate hikes whereas Mario Draghi must explain why he doesn’t see the need for such changes. Both economies are growing but history shows that the ECB is more conservative than the Fed in its reactions. The ECB is still trying to understand and gauge the reaction across nineteen diverse economies of its policy so a little reticence is only to be expected.
The ECB meets this week before its members disappear on the summer vacations. No changes are expected but analysts will study Draghi’s press conference for any changes or inference in his reaction to economic activity.
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.”